THE LEGAL ENVIRONMENT
OF BUSINESS
A Critical Thinking Approach
Fourth Edition
Nancy K. Kubasek
Bartley A. Brennan
M. Neil Browne
© 2006 Prentice Hall
Ch. 5-1
THE LEGAL ENVIRONMENT OF BUSINESS
CHAPTER 5
Constitutional Principles
© 2006 Prentice Hall, Inc.
Ch. 5-2
THE LEGAL ENVIRONMENT OF BUSINESS
The Constitution
Provides the legal framework for the nation
Sets out the basic structure of government
Establishes the balance of powers
Amendments establish individual rights
© 2006 Prentice Hall
Ch. 5-3
THE LEGAL ENVIRONMENT OF BUSINESS
Federalism
Definition: A division of political power
between a central authority and constituent
units
Operation: All powers not specifically given to
the federal government are reserved to the
states
Federal regulation must be based in a
constitutional provision
© 2006 Prentice Hall
Ch. 5-4
THE LEGAL ENVIRONMENT OF BUSINESS
Supremacy Clause
Article V of the Constitution
Any state or local law that directly
conflicts with the federal Constitution,
laws, or treaties is void.
© 2006 Prentice Hall
Ch. 5-5
THE LEGAL ENVIRONMENT OF BUSINESS
Federal Preemption
Federal law “preempts” state or local law
where a local law indirectly conflicts with
congressional intent, as evidenced by
federal legislation regulating the same
area.
© 2006 Prentice Hall
Ch. 5-6
THE LEGAL ENVIRONMENT OF BUSINESS
Separation of Powers
Checks and Balances on Power
Article I - Legislative Branch
Enacts the Law
Article II - Executive Branch
Enforces the Law
Article III - Judicial Branch
Interprets the Law
© 2006 Prentice Hall
Ch. 5-7
THE LEGAL ENVIRONMENT OF BUSINESS
Case 5-1: Clinton v. Jones
 Separation of Powers Doctrine does not
provide complete presidential immunity
from private suits; both for official and
unofficial acts
 Precedent: Civil cases involving Truman,
Kennedy, Nixon, Ford
© 2006 Prentice Hall
Ch. 5-8
THE LEGAL ENVIRONMENT OF BUSINESS
The Commerce Clause
Article I, Sec. 8
Congress has the power “To regulate Commerce
with foreign Nations, and among the several
States and with the Indian Tribes…”.
© 2006 Prentice Hall
Ch. 5-9
THE LEGAL ENVIRONMENT OF BUSINESS
The Commerce Clause
Is the basis for federal regulation of
business
Is a limited grant of power
Is subject to interpretation by the Court
Currently, this power is interpreted broadly
and includes intrastate as well as interstate
activity
© 2006 Prentice Hall
Ch. 5-10
THE LEGAL ENVIRONMENT OF BUSINESS
Supreme Court Cases
Interstate Commerce is found in:
Intrastate activities - NLRB v. Jones & Laughlin
(1937)
Growing and consuming wheat on a farm –
Wickard v. Filburn (1942)
Loansharking – Perez v. U.S. (1971)
A local restaurant – IHOP v. Pinnock (1993)
Local coal mining – U.S. v. Lake (1995)
© 2006 Prentice Hall
Ch. 5-11
THE LEGAL ENVIRONMENT OF BUSINESS
Supreme Court Cases
Interstate Commerce NOT found in:
Gun-Free School Zone Act - U.S. v. Lopez (1995)
Violence against Women Act – Brzonkala v.
Morrison (2000)
© 2006 Prentice Hall
Ch. 5-12
THE LEGAL ENVIRONMENT OF BUSINESS
The Police Power
Definition
The inherent regulatory
power of the state to
pass laws to protect the
public health, safety,
welfare, and morals of
the community
© 2006 Prentice Hall
When does the state’s
police power conflict
with federal Commerce
Clause power?
Ch. 5-13
THE LEGAL ENVIRONMENT OF BUSINESS
The Two-Pronged Test
The Rational Basis Test
The Balancing Test
Case 5-3: Oregon Waste Systems v. Oregon
Discriminatory state pricing burdens interstate
commerce…no state showing of rational basis,
nor of an offsetting legitimate state interest
© 2006 Prentice Hall
Ch. 5-14
THE LEGAL ENVIRONMENT OF BUSINESS
Taxing and Spending Clause
Article I, Section 8
Gives congress the “Power to lay and collect
taxes…” and to “pay the Debts and provide for
the common Defense and General Welfare…”.
This power often used to accomplish
specific goals, (i.e., federal highway funds)
© 2006 Prentice Hall
Ch. 5-15
THE LEGAL ENVIRONMENT OF BUSINESS
The Bill of Rights
Protects citizens against the federal
government
Comprised of the first Ten
Amendments
Extended to the states via the
Fourteenth Amendment
© 2006 Prentice Hall
Ch. 5-16
THE LEGAL ENVIRONMENT OF BUSINESS
The First Amendment
Freedom of Speech
Freedom of the Press
Right to Assembly
Right to Petition for Redress
Separation of Church and State
Right to Free Exercise of Religion
© 2006 Prentice Hall
Ch. 5-17
THE LEGAL ENVIRONMENT OF BUSINESS
Restrictions on Speech
Speech that causes danger
Obscene speech
Hate speech
Commercial speech
Corporate speech
© 2006 Prentice Hall
Ch. 5-18
THE LEGAL ENVIRONMENT OF BUSINESS
Case 5-4: Central Hudson v. New York
 Commercial speech relates solely to
economic interests
 Occurs in an area traditionally subject to
government regulation
 Commercial speakers have knowledge of
the market and their product
 Commercial speech is a hardy breed of
expression
© 2006 Prentice Hall
Ch. 5-19
THE LEGAL ENVIRONMENT OF BUSINESS
Corporate Speech
Commercial speech entitled to lesser
protection, yet is still protected if not
misleading or unlawful
State must assert a substantial interest
Regulation must be no more than
necessary to achieve legitimate interest
Political speech treated the same as for
individual citizens
© 2006 Prentice Hall
Ch. 5-20
THE LEGAL ENVIRONMENT OF BUSINESS
The Fourth Amendment
The right of individuals to be secure in
their persons, their homes, and their
personal property
No unreasonable searches and seizures
Requires probable cause and a warrant
for searches
© 2006 Prentice Hall
Ch. 5-21
THE LEGAL ENVIRONMENT OF BUSINESS
The Fourth Amendment
Exception: Administrative Searches
Where industry is subject to pervasive
regulation
Where there is a reduced expectation of privacy
Where there is a substantial government
interest
Where there is a constitutionally adequate
substitute for a warrant
© 2006 Prentice Hall
Ch. 5-22
THE LEGAL ENVIRONMENT OF BUSINESS
The Fifth Amendment
Protects against self-incrimination and
double jeopardy
Due Process
Procedural: Notice and opportunity to be
heard; to confront witnesses
Substantive: Protection against arbitrary
laws unrelated to legitimate state
purposes
© 2006 Prentice Hall
Ch. 5-23
THE LEGAL ENVIRONMENT OF BUSINESS
The Fifth Amendment
The Takings Clause:
Private property may not be
taken by the state unless;
It is taken for public
purposes
When does regulation
amount to a taking?
See Lucas v. S.
Carolina Coastal
Commission
The owner is paid just
compensation
© 2006 Prentice Hall
Ch. 5-24
THE LEGAL ENVIRONMENT OF BUSINESS
The Fourteenth Amendment
Applies the Bill of Rights and the Due
Process Clause to the states
Exceptions: Grand Jury and right to jury
trials
Also important:
The Equal Protection Clause
© 2006 Prentice Hall
Ch. 5-25
THE LEGAL ENVIRONMENT OF BUSINESS
Summary
The Constitution is the framework of the
government
Federalism is the fundamental concept
States regulate local matters
Federal government has only limited power
Commerce Clause is the primary source of
federal power to regulate business
© 2006 Prentice Hall
Ch. 5-26