Kyrsti Deane

Business Law 2110

Due: September 22, 2021
Chapter Five Outline & Notes
Chapter 5 - Constitutional Law
Learning Objectives:
1. Define federalism.
2. Explain the function of each branch of government and how each branch
serves to check the others.
3. Describe the relationship between the supremacy clause and preemption.
4. Describe how the commerce clause affects the power of both the state
and federal governments to regulate.
5. Differentiate between commercial and political speech.
6. Recognize how rights guaranteed by the Bill of Rights affect business managers.

The U.S. Constitution

1. Define federalism:
 Federalism: A system of government in which power is divided between a central
authority and constituent political units.
i) Tenth Amendment of the Constitution - all powers that the Constitution neither gives
exclusively to the federal government nor takes from the states are reserved for the states.
ii) The first three articles of the Constitution establish three independent branches of the
federal government: the legislative, executive, and judicial branches.

Judicial Review
2. Explain the function of each branch of government and how each branch serves to
check the others.
 Judicial Review: power of a court to review legislative and executive actions, such as a law or
an official act of a government employee or agent, to determine whether they are constitutional.
i) Judicial review also allows courts to review the constitutionality of lower court’s decisions.
Flowchart illustrating the United States governmental system of checks and balances:
 Kyrsti Deane
Business Law 2110
Due: September 22, 2021
Chapter Five Outline & Notes
The Supremacy Clause and Federal Preemption
3. Describe the relationship between the supremacy clause and preemption.

The supremacy clause: located in Article VI of the Constitution, provides that the Constitution,
laws, and treaties of the United States constitute the supreme law of the land, “any Thing in the
Constitution or Laws of any State to the Contrary notwithstanding.”
 Any state or local law that directly conflicts with the Constitution, federal laws, or treaties is void.
 Federal laws include rules passed by federal administrative agencies.
o Example: The Federal Aviation Administration has banned the use of cell phones on airplanes.
If a Missouri law permitted cell phone usage on airplanes, it would be unconstitutional
according to the supremacy clause.
In some areas, the state and federal governments have concurrent authority; meaning both
governments have the power to regulate the same subject matter. In such cases, the states may
regulate in the area so long as a person’s compliance with the state regulation would not cause
violation of a federal regulation.
o Example: Congress has established a number of environmental standards, but some states
have passed even more protective standards.
When the state and federal governments have concurrent authority, the federal government can decide
to regulate that area exclusively. In such a situation, according to the doctrine of federal preemption,
the state law is unconstitutional. To determine whether Congress intended to provide exclusive
regulation, courts look to the language of the statute and transcripts of congressional hearings.
The Commerce Clause: located in Article I, Section 8 of the Constitution, is the primary
source of authority for federal regulation of business. This clause states that the U.S. Congress
has the power to “regulate Commerce with foreign Nations, and among the several States, and
with the Indian Tribes.” This simultaneously empowers the federal government and restricts
the power of state governments.

The Commerce Clause as a Source of Authority for the Federal Government

4. Describe how the commerce clause affects the power of both the state and federal
governments to regulate.

 Most federal regulations are exercises of congressional authority according to the commerce clause.
o So long as a law affects commerce among the states, or interstate commerce, in some way, the
regulation is generally constitutional.
o In many cases, legislatures change the law by replacing statutes with different ones.
o In other cases, the law changes even when statutes do not change because the courts interpret
statutes differently over time.
 Congress has regulated a broad range of business activities according to the commerce clause:
o Federal Mine Safety and Health Act, which sets standards for safety in coal mines;
o Americans with Disabilities Act, which prohibits firms from discriminating against
employees and potential employees who have disabilities;
o Consumer Protection Act, which criminalizes certain loan-sharking activities.
 Kyrsti Deane
Business Law 2110
Due: September 22, 2021
Chapter Five Outline & Notes
The Commerce Clause as a Restriction on State Authority
 The federal government’s authority to regulate interstate commerce sometimes conflicts with the
states’ authority to regulate intrastate commerce. Courts have attempted to resolve this conflict
by distinguishing between regulations of commerce and regulations under states’ police power.
o Police powers are residual powers retained by each state to safeguard the health and
welfare of its citizenry. Typical exercises of a state’s police power include:
 state criminal laws, building codes, zoning laws
 sanitation standards for restaurants
 regulations for the practice of medicine.

 Sometimes a state’s use of its police power affects interstate commerce. If the purpose of a state
law is to regulate interstate commerce or to discriminate against interstate commerce, the law is
usually unconstitutional.
 Likewise, if a law substantially interferes with interstate commerce, it is generally unconstitutional.
This restriction on states’ authority to pass laws that substantially affect interstate commerce is
called the dormant commerce clause.

Taxing and Spending Powers of the Federal Government

 Article I, Section 8, of the Constitution gives the federal government the -
“Power to lay and collect Taxes, Duties, Imports, and Excises.”
 Taxes laid by Congress must be uniform across the states. The government cannot impose
higher taxes on residents of one state than it imposes on those of another.

 Article I, Section 8, also grants Congress spending power by authorizing it to “pay the Debts
and provide for the common Defense and general Welfare of the United States.”
o As with its power to tax, Congress can use its spending power to achieve social welfare objectives.

Other Constitutional Restrictions on Government

The Privileges and Immunities Clause
 Article IV, Section 2, of the Constitution states that “Citizens of each State shall be entitled to
all Privileges and Immunities of Citizens in the several States.”
 This provision, called the privileges and immunities clause, prohibits states from discriminating
against citizens of other states when those nonresidents engage in ordinary and essential activities.

The Full Faith and Credit Clause

 Article IV, Section 1, of the Constitution contains the full faith and credit clause, which states,
“Full Faith and Credit shall be given in each State to the public Acts, Records,
and judicial Proceedings of every other State.”
 Kyrsti Deane
Business Law 2110
Due: September 22, 2021
Chapter Five Outline & Notes
The Contract Clause
 Article I, Section 10, contains the contract clause, which states that government may not pass any
“Law impairing the Obligation of Contracts.”
 In application, courts interpret this clause to mean that no law can be passed that will unreasonably
interfere with existing contracts.

The Amendments to the Constitution

 The first ten amendments to the U.S. Constitution are known as the Bill of Rights.
 The Bill of Rights substantially affects government regulation of business.
 These amendments prohibit the federal government from infringing on individual freedoms.
o The Fourteenth Amendment extends most of the provisions in the Bill of Rights to the
states, prohibiting state interference in citizens’ exercise of their rights.
 Many other countries do not have constitutional provisions to protect citizens from the government.
 Courts apply many amendments to corporations because corporations are treated (mostly) as people.

BILL OF RIGHTS
Amendment PROVISIONS
 Protects freedom of religion, press, speech, and peaceable assembly.
First  Ensures that citizens have the right to ask the government to redress grievances.

 Finds that a well-regulated militia is necessary for security.

Second  States that government cannot infringe on citizens’ right to bear arms.

 States that government cannot house soldiers in private residences during peacetime
Third or during war except for provisions in the law.

 Protects citizens from unreasonable search and seizure.

Fourth  Ensures that government issues warrants only with probable cause.

 Ensures government only puts citizens on trial by indictment of a grand jury.

 Gives citizens the right not to testify against themselves.
 Prevents government from trying citizens twice for the same crime.
Fifth  Creates due process rights.
 States government cannot take private property for public use without offering fair
and just compensation.

 Provides the right to a speedy public trial with an impartial jury, the right to know
what criminal accusations a citizen faces, the right to have witnesses both against
Sixth
and for the accused, and the right to have an attorney.
 Kyrsti Deane
Business Law 2110
Due: September 22, 2021
Chapter Five Outline & Notes
Amendment PROVISIONS
 States that in common lawsuits in which the monetary value exceeds $20, citizens
Seventh have the right to a trial by jury.

 States that government will not set bail at excessive levels.

 Prohibits government imposition of excessive fines.
Eighth
 Prohibits cruel and unusual punishment.

 States that although the Bill of Rights names certain rights, this does not remove
Ninth other rights retained by citizens.

 States that powers that the Constitution does not give to the federal government are
Tenth reserved for the states.

The First Amendment

5. Differentiate between commercial and political speech.

 Freedom of Speech and Assembly

o First Amendment guarantees freedom of speech, including gestures and other forms of expression,
and guarantees freedom of the press.
o It prohibits abridgment of the right to assemble peacefully and to petition the government for
redress of grievances.
o Finally, it prohibits the government from aiding the establishment of religion and from interfering
with the free exercise of religion.

Political Speech: The First Amendment protections also apply to corporations. Courts do not,
however, treat all corporate speech the same. Sometimes corporations engage in political speech;
they support political candidates or referenda.

6. Recognize how the rights guaranteed by the Bill of Rights affect business managers.

Commercial Speech: speech that conveys information

related to the sale of goods and services. Courts analyze
government restrictions on commercial speech according to
a four-part test established in Central Hudson Gas &
Electric Corp. v. Public Service Commission of New York.

Unprotected Speech: The First Amendment right to free

speech is not absolute. In the 1942 case Chaplinsky v. New
Hampshire, the U.S. Supreme Court held:

There are certain well-defined and narrowly limited classes

of speech, the prevention and punishment of which have
 Kyrsti Deane
Business Law 2110
Due: September 22, 2021
Chapter Five Outline & Notes
never been thought to raise any Constitutional problem. These include the lewd and obscene, the
profane, the libelous, and the insulting or fighting words—those which by their very utterance
inflict injury or tend to incite an immediate breach of the peace.

 First Amendment does not protect defamation, or speech that harms the reputation of another.
o Courts may require an individual who uses such speech to compensate the person
whose reputation was harmed by the speech.
 The First Amendment does not protect obscenity, although in many cases courts find it
difficult to determine whether speech constitutes obscenity.
 Free-exercise clause states government cannot make law “prohibiting the free exercise” of religion.

The Fourth Amendment

Freedom from Unreasonable Searches and Seizures

 The Fourth Amendment guarantees citizens the right to be “secure in their persons, their
homes, and their personal property.”
 It prohibits government from conducting unreasonable searches of individuals and seizing
their property to use as evidence against them.
 A search is unreasonable if the government official conducting the search does not first
obtain a search warrant from a court.
o A search warrant is a court order that authorizes law enforcement agents to search for or
seize items specifically described in the warrant.
o Government officials can obtain search warrants only if they can show probable cause to
believe that the search will uncover specific evidence of criminal activity.
 Officials must have a sufficient reason based on known facts to obtain a warrant.

 The Supreme Court has ruled that in certain circumstances government officials do not need
a search warrant. Example: when law enforcement officials believe it is likely that the items
sought will be removed before they can obtain a warrant, they may conduct a search.

 In addition to protecting individuals and their homes, the Fourth Amendment also protects
corporations and places of business. Fourth Amendment issues have arisen when government
regulations authorize administrative agencies to conduct warrantless searches.
o Pervasive-regulation exception: Administrative searches usually require search warrants;
However, courts have an exception to this rule: If an industry has a long history of
pervasive regulation, a warrantless search is not unreasonable. In such industries,
administrative agencies can use warrantless searches to ensure that regulation is upheld.

The Fifth Amendment

The Fifth Amendment protects individuals in several important ways -

 Protects against self-incrimination, meaning that in a criminal case, the defendant does not
have to testify in court as a witness against himself or herself.
 Protects against double jeopardy; a person cannot be tried more than once for the same crime.
 Kyrsti Deane
Business Law 2110
Due: September 22, 2021
Chapter Five Outline & Notes
Due Process
 For businesses and corporations, the due process clause provides extensive protection.
o Clause states that government cannot deprive a person of life, liberty, or property
without due process of law.
 The due process clause guarantees two types of due process: procedural and substantive.
o Procedural due process requires the government to use fair procedures when taking the life,
liberty, or property of an individual or corporation.
o At a minimum, procedural due process entitles a person to notice of any legal action against
her and to a hearing before an impartial tribunal.
o Substantive due process refers to the basic fairness of laws that may deprive an individual of
her life, liberty, or property. To satisfy the substantive due process requirement, government
must have a proper purpose for enacting laws that restrict individuals’ liberty or the use of
their property.

The Prohibition against Uncompensated Takings

 Takings Clause: Fifth Amendment provides that when government takes private property for public
use, it must pay the owner just compensation, or fair market value, for her property.

The Privilege against Self-Incrimination

 Corporations do not enjoy the Fifth Amendment’s protection against self-incrimination.
 Sole proprietors are entitled to the protection of the Fifth Amendment.
 Businesses have different constitutional rights depending on their form of business organization.

The Ninth Amendment

The Right to Privacy

 Ninth Amendment states, “The enumeration in the Constitution, of certain rights, shall not be
construed to deny or disparage others retained by the people.”
o Although this amendment does not expressly guarantee the right to privacy, courts have
interpreted the Ninth Amendment, together with the First, Third, Fourth, and Fifth
Amendments, as providing individuals with a right to privacy.

The Fourteenth Amendment

Equal Protection

 Fourteenth Amendment contains the equal protection clause, which prevents states from
denying “the equal protection of the laws” to any citizen.
 As with the due process clause, to determine whether a law violates the equal protection clause,
courts use different standards based on the nature of the rights the classification affects.
Three standards of scrutiny apply: strict scrutiny, intermediate scrutiny, and the rational-basis test.

 If a law prevents individuals from exercising a fundamental right, or if the law’s classification
scheme involves suspect classifications, the action will be subject to strict scrutiny.
o Suspect classifications include classifications based on race, national origin, and citizenship.
 Kyrsti Deane
Business Law 2110
Due: September 22, 2021
Chapter Five Outline & Notes
 Courts uphold suspect classifications only if they are necessary to promote
a compelling state interest.
 Several courts have held that in some cases remedying past discrimination
against a group is a compelling state interest.

 If the law’s classification scheme is based on gender or on the legitimacy of children, courts
use intermediate scrutiny. According to this standard, the law is constitutional only if it is
substantially related to an important government objective.

 When a classification scheme involves other matters, courts apply a rational-basis test. According
to this test, courts ask whether there is any justifiable reason to believe that the classification
scheme advances a legitimate government interest.

Chapter Summary Provided:

 Federalism: The authority to govern is divided between

two sovereigns, or supreme lawmakers: the federal
government and the states.
 Separation of powers: The Constitution divides power
The U.S. Constitution among the legislative, executive, and judicial branches
of government. The system of checks and balances
allocates specific powers to each branch to keep the
other branches from dominating government.

 Federal supremacy: Any state or local law that directly

conflicts with the U.S. Constitution, federal laws, or
treaties is void.
 Concurrent authority: Both state and federal
The Supremacy Clause and governments have the power to regulate certain matters;
Federal Preemption generally, the federal government defers to the state.
 Federal preemption: The federal government uses this
doctrine to strike down laws that do not directly conflict
with a federal law but attempt to regulate an area within
federal legislative jurisdiction.

 The commerce clause grants the federal government the

The Commerce Clause authority to pass regulations that significantly affect
interstate commerce. Today, this clause provides the
basis for most federal government regulations.
 Kyrsti Deane
Business Law 2110
Due: September 22, 2021
Chapter Five Outline & Notes
 Police powers are the residual powers retained by states
to pass laws to safeguard the health and welfare of their
citizens.
 The dormant commerce clause prohibits states from
passing laws that significantly interfere with interstate
commerce.

 Congressional taxes must be uniform across all states.

Taxing and Spending Powers of Congress can use taxes and spending for purposes other
the Federal Government than generating revenue; for example, it can use them to
indirectly promote social goals.

 The privileges and immunities clause prohibits states

from discriminating against citizens of other states.
 The full faith and credit clause states that in civil
Other Constitutional Restrictions matters, courts in all states must uphold rights
on Government established by legal documents.
 The contract clause states that Congress cannot pass
laws that unreasonably interfere with existing contracts.

 First Amendment:
o Protects corporate speech in certain
circumstances. It protects corporate political
speech to the same extent that it protects
individuals’s political speech. The Central
Hudson test determines whether the First
Amendment protects particular corporate
commercial speech.
o Contains the establishment clause, which states
that Congress may not make laws respecting an
establishment of religion, and the free-exercise
clause, which states that Congress may not
The Amendments to the make laws prohibiting the free exercise of
Constitution religion.
 Fourth Amendment:
o Protects both corporations and individuals from
unreasonable government searches and seizures.
Although administrative searches generally
require a warrant, administrative agencies may
inspect some industries without a warrant to
ensure compliance with industry regulations.
 Fifth Amendment:
o States that government cannot take an
individual’s life, liberty, or property without due
process of law. There are two types of due
process: procedural due process, which focuses
 Kyrsti Deane
Business Law 2110
Due: September 22, 2021
Chapter Five Outline & Notes
on rules for enforcing laws and entitles
individuals to notice of legal action against
them, and substantive due process, which
requires government to have a proper purpose
for enacting laws that restrict individuals’s
liberty or the use of their property.
o States that if government takes private property
for public use, it must compensate the owner.
The extent to which some government
regulations constitute takings, however,
generates much litigation.
o Includes a privilege against self-incrimination,
although the provision does not apply to
corporations. Only individual citizens and sole
proprietorships may exercise this right.
o Guarantees individuals equal protection under
the law. Courts use three standards of scrutiny in
equal protection cases: (i) strict scrutiny, to
analyze government actions that abridge
fundamental rights or that include suspect
classifications; (ii) intermediate scrutiny, to
analyze classifications based on gender or on
legitimacy of children; and (iii) the rational-
basis test, to analyze classifications involving
other matters.
 Ninth Amendment:
o Along with the First, Third, Fourth, and Fifth
Amendments, this amendment provides
individuals with a right to privacy.
 Fourteenth Amendment:
o Applies the due-process clause to state
governments and contains the equal protection
clause, which prohibits states from denying the
equal protection of the laws to any citizens.
 Kyrsti Deane
Business Law 2110
Due: September 22, 2021
Chapter Five Outline & Notes
KEY TERMS:

Federalism: A system of government in which power is divided between a central authority and
constituent political units.

Judicial Review: The power of a court to review legislative and executive actions, such as a law
or an official act of a government employee or agent, to determine whether they are constitutional.

Supremacy Clause: Article VI, Paragraph 2, of the U.S. Constitution, which states that the
Constitution and all laws and treaties of the United States constitute the supreme law of the land.
Thus, any state or local law that directly conflicts with the U.S. Constitution or federal laws or
treaties is void.

Federal Preemption: A principle asserting the supremacy of federal legislation over state
legislation when both pertain to the same matter.

Commerce Clause: Clause 3 of Article I, Section 8, of the U.S. Constitution, which authorizes
Congress to “regulate Commerce with foreign Nations, and among the several States, and with
the Indian Tribes.”

Police Power: Power retained by each state to pass laws that protect the health, safety, and
welfare of its citizens.

Dormant Commerce Clause: A restriction on states’ authority that is implied in the commerce
clause of the U.S. Constitution: The power given to Congress to enact legislation that affects
interstate commerce in effect prohibits a state from passing legislation that improperly burdens
interstate commerce.

Privileges and Immunities Clause: Clause in the U.S. Constitution requiring a state to grant
citizens of other states the same legal benefits that it grants its own citizens.

Full Faith and Credit Clause: The clause of the U.S. Constitution (Article IV, Section 1)
mandating that each state must recognize, respect, and enforce the public records, legislative
acts, and judicial decisions of the other states.

Contract Clause: The clause in the U.S. Constitution that prohibits the government from
unreasonably interfering with an existing contract.
 Kyrsti Deane
Business Law 2110
Due: September 22, 2021
Chapter Five Outline & Notes
Political Speech: Speech that is used to support political candidates or referenda. It is given a
high level of protection by the First Amendment as compared to other types of speech.

Commercial Speech: Speech made by businesses about commercial matters, such as the sale of
goods and services. It is protected by the First Amendment.

Free-Exercise Clause: A clause in the First Amendment of the U.S. Constitution that states that
government (state and federal) cannot make a law “prohibiting the free exercise” of religion.
This clause is interpreted to include absolute freedom to believe and freedom to act that may face
state restriction.

Search Warrant: A court order that authorizes law enforcement agents to search for or seize
items specifically described in the warrant.

Due Process Clause: A clause in the Fifth Amendment of the U.S. Constitution providing that the
government cannot deprive an individual of life, liberty, or property without a fair and just hearing.

Procedural Due Process: The requirement that a government must use fair procedures before
depriving a person of his or her life, liberty, or property.

Substantive Due Process: The requirement for laws depriving an individual of life, liberty, or
property to be fair and not arbitrary.

Takings Clause: A clause in the Fifth Amendment of the U.S. Constitution requiring that when
government uses its power to take private property for public use, it must pay the owner just
compensation, or fair market value, for the property.

Equal Protection Clause: A clause in the Fourteenth Amendment of the U.S. Constitution that
prevents states from denying “the equal protection of the laws” to any citizen. This clause
implies that all citizens are created equal.

Strict Scrutiny: The most exacting standard of review used by the courts in determining the
constitutionality of a statute; requires a compelling government interest and the least restrictive
means of attaining that objective.

Intermediate Scrutiny: A standard of review under which a law must be necessary to achieve a
substantial, or important, government interest and it must be narrowly tailored to that interest.

Rational-Basis Test: The lowest standard of review; requires a law to be designed to protect a
legitimate state interest and be rationally related to that interest.