Business Law Today: Text And Summarized Cases: E-Commerce, Legal, Ethical, And Global Environment, 9th Edition Solution Manual by A+

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Business Law Today: Text And Summarized Cases: E-Commerce, Legal, Ethical, And Global Environment, 9th Edition Solution Manual by A+

Business Law Today: Text And Summarized Cases: E-Commerce, Legal, Ethical, And Global Environment, 9th Edition Solution Manual by A+

$35.00
Business Law Today: Text And Summarized Cases: E-Commerce, Legal, Ethical, And Global Environment, 9th Edition Solution Manual by A+

Constitutional Law
 See Separate Lecture Outline System

INTRODUCTION

Many people assume that a government acts from a vague position of strength and can enact any regu-
lation it deems necessary or desirable. This chapter emphasizes a different perspective from which to view the

law: action taken by the government must come from authority and this authority cannot be exceeded.
Neither Congress nor any state may pass a law in conflict with the Constitution. The Constitution is the
supreme law in this country. The Constitution is the source of federal power and to sustain the legality of a
federal law or action a specific federal power must be found in the Constitution. States have inherent sovereign
power—that is, the power to enact legislation that has a reasonable relationship to the welfare of the citizens of
that state. The power of the federal government was delegated to it by the states while the power of the states
was retained by them when the Constitution was ratified.
The Constitution does not expressly give the states the power to regulate, but limits the states‟ exercise
of powers not delegated to the federal government.

ADDITIONAL RESOURCES —

 VIDEO SUPPLEMENTS 
The following video supplements relate to topics discussed in this chapter—

PowerPoint Slides

To highlight some of this chapter‟s key points, you might use the Lecture Review PowerPoint slides
compiled for Chapter 2.

Business Law Digital Video Library

The Business Law Digital Video Library at www.cengage.com/blaw/dvl offers a variety of

30 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS

videos for group or individual review. These clips apply legal concepts to common experiences to ignite
discussion and illustrate core concepts. Clips on topics covered in this chapter include the following.

• Drama of the Law

Free Speech: Constitutional Issues—The right to free speech is guaranteed in the Constitution. When
an individual chooses to speak freely about a business, there may be legal consequences.

• Legal Conflicts in Business

Privacy in Information Sharing—Solicitation of potential customers, by phone or direct mail, is a
common practice for businesses to generate interest in their products. When a customer list is obtained
under questionable circumstances, however, the “common practice” may pose a problem.

• Ask the Instructor

Constitutional Law: Monitoring Employees’ E-mail and Internet Usage—The constitutional right to
privacy protects us from government intrusion. But employers in the private sector are free to monitor
their employees, subject only to specific state laws.

CHAPTER OUTLINE
I. The Constitutional Powers of Government
Before the U.S. Constitution, the Articles of Confederation defined the central government.
A. A FEDERAL FORM OF GOVERNMENT
The U.S. Constitution established a federal form of government, delegating certain powers to the
national government. The states retain all other powers. The relationship between the national
government and the state governments is a partnership—neither partner is superior to the other
except within the particular area of exclusive authority granted to it under the Constitution.
B. THE SEPARATION OF POWERS
Deriving power from the Constitution, each of the three governmental branches (the executive, the
legislative, and the judicial) performs a separate function. No branch may exercise the authority of
another, but each has some power to limit the actions of the others. This is the system of checks
and balances. Congress, for example, has power over spending and commerce, but the president can
veto congressional legislation. The executive branch is responsible for foreign affairs, but treaties
with foreign governments require the advice and consent of the members of the Senate. Congress
determines the jurisdiction of the federal courts, but the United States Supreme Court has the
power to hold acts of the other branches of the federal government unconstitutional.
ANSWER TO LEARNING OBJECTIVE/FOR REVIEW QUESTION NO. 1
What is the basic structure of the U.S. government? The Constitution divides the national

CHAPTER 2: CONSTITUTIONAL LAW 31

government‟s powers among three branches. The legislative branch makes the laws, the executive
branch enforces the laws, and the judicial branch interprets the laws. Each branch performs a separate
function, and no branch may exercise the authority of another branch. A system of checks and balances
allows each branch to limit the actions of the other two branches, thus preventing any one branch from
exercising too much power.

32 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS

C. THE COMMERCE CLAUSE
1. The Commerce Clause and the Expansion of National Powers

The Constitution expressly provides that Congress can regulate commerce with foreign na-
tions, interstate commerce, and commerce that affects interstate commerce. This provision—

the commerce clause—has had a greater impact on business than any other provision in the
Constitution. This power was delegated to the federal government to ensure a uniformity of
rules governing the movement of goods through the states.

CASE SYNOPSIS—

Case 2.1: Heart of Atlanta Motel v. United States

A motel owner, who refused to rent rooms to African Americans despite the Civil Rights Act of 1964,
brought an action to have the Civil Rights Act of 1964 declared unconstitutional. The owner alleged
that, in passing the act, Congress had exceeded its power to regulate commerce because his motel was
not engaged in interstate commerce. The motel was accessible to state and interstate highways. The
owner advertised nationally, maintained billboards throughout the state, and accepted convention trade
from outside the state (75 percent of the guests were residents of other states). The district court
sustained the constitutionality of the act and enjoined the owner from discriminating on the basis of
race. The owner appealed. The case went to the United States Supreme Court.
The United States Supreme Court upheld the constitutionality of the Civil Rights Act of 1964. The
Court noted that it was passed to correct “the deprivation of personal dignity” accompanying the denial
of equal access to “public establishments.” Congressional testimony leading to the passage of the act
indicated that African Americans in particular experienced substantial discrimination in attempting to
secure lodging. This discrimination impeded interstate travel, thus impeding interstate commerce. As
for the owner‟s argument that his motel was “of a purely local character,” the Court said, “[I]f it is
interstate commerce that feels the pinch, it does not matter how local the operation that applies the
squeeze.” Therefore, under the commerce clause, Congress has the power to regulate any local activity
that has a harmful effect interstate commerce.
………………………………………………………………………………………………………………………………..

Notes and Questions

Does the Civil Rights Act of 1964 actually regulate commerce or was it designed to end
the practice of race (and other forms of) discrimination? In this case, the Supreme Court said,
“[T]hat Congress was legislating against moral wrongs . . . rendered its enactments no less valid.”
Are there any businesses in today’s economy that are “purely local in character”? An
individual who contracts to perform manual labor such as lawn mowing or timber cutting within a small
geographic area might qualify, as long as the activity has no effect on interstate commerce. But in most
circumstances it would be difficult if not impossible to do business “purely local in character” in today‟s

CHAPTER 2: CONSTITUTIONAL LAW 33

U.S. economy. Federal statutes that derive their authority from the commerce clause often include
requirements or limits to exempt small or arguably local businesses.
Which constitutional clause empowers the federal government to regulate commercial
activities among the states? To prevent states from establishing laws and regulations that would

interfere with trade and commerce among the states, the Constitution expressly delegated to the na-
tional government the power to regulate interstate commerce. The commerce clause—Article I, Section 8,

of the U.S. Constitution—expressly permits Congress “[t]o regulate Commerce with foreign Nations, and
among the several States, and with the Indian Tribes.”

ANSWER TO LEARNING OBJECTIVE/FOR REVIEW QUESTION NO. 2
(Note that your students can find the answers to the even-numbered

For Review questions on this text’s Web site at

www.cengage.com/blaw/blt.

We repeat these answers here as a convenience to you.)
Which constitutional clause empowers the federal government to regulate commercial
activities among the states? To prevent states from establishing laws and regulations that would

interfere with trade and commerce among the states, the Constitution expressly delegated to the na-
tional government the power to regulate interstate commerce. The commerce clause—Article I, Section 8,

of the U.S. Constitution—expressly permits Congress “[t]o regulate Commerce with foreign Nations, and
among the several States, and with the Indian Tribes.”
2. The Commerce Power Today
The breadth of the power was interpreted to permit the federal government to legislate in
areas in which there is no explicit grant of power to Congress. In the 1990s, the United States
Supreme Court began to limit this power, but it still serves as the basis for much federal
legislation.
3. The Regulatory Powers of the States
Another problem that arises under the commerce clause concerns a state‟s ability to regulate
matters within its own borders. As part of their inherent sovereignty, states possess police
power, and state laws enacted pursuant to a state‟s police powers carry a strong presumption of
validity.
4. The “Dormant” Commerce Clause

States do not have the authority to regulate interstate commerce. When state regulations im-
pinge on interstate commerce, the state‟s interest in the merits and purposes of the regulation

34 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS

must be balanced against the burden placed on interstate commerce. It is difficult to predict
the outcome in a particular case.
D. THE SUPREMACY CLAUSE
In the supremacy clause, the Constitution provides that the Constitution, laws, and treaties of the
United States are the supreme law of the land. When there is a direct conflict between a federal law
and a state law, the state law is held to be invalid. Preemption occurs when Congress chooses to act
exclusively in an area of concurrent federal and state powers. A valid federal statute or regulation
takes precedence over a conflicting state or local law on the same general subject. Generally,
congressional intent to preempt will be found if a federal law is so pervasive, comprehensive, or
detailed that the states have no room to supplement it. Also, when a federal statute creates an
agency to enforce the law, matters that may come within the agency‟s jurisdiction will likely
preempt state laws.
ANSWER TO LEARNING OBJECTIVE/FOR REVIEW QUESTION NO. 3
Which constitutional clause gives laws enacted by the federal government priority over
conflicting state laws? The supremacy clause—Article VI of the Constitution—provides that the
Constitution, laws, and treaties of the United States are “the supreme Law of the Land.” This article is
important in the ordering of state and federal relationships. When there is a direct conflict between a
federal law and a state law, the state law is rendered invalid.
II. Business and the Bill of Rights
The first ten amendments to the Constitution embody protections against various types of interference
by the federal government. The guarantees include protection of the freedoms of religion and speech.
Also held to be fundamental is a personal right to privacy, derived from guarantees found in some of
these amendments.
ANSWER TO LEARNING OBJECTIVE/FOR REVIEW QUESTION NO. 4
(Note that your students can find the answers to the even-numbered

For Review questions on this text’s Web site at

www.cengage.com/blaw/blt.

We repeat these answers here as a convenience to you.)
What is the Bill of Rights? What freedoms does the First Amendment guarantee? The
Bill of Rights consists of the first ten amendments to the U.S. Constitution. Adopted in 1791, the Bill of
Rights embodies protections for individuals against interference by the federal government. Some of the
protections also apply to business entities. The First Amendment guarantees the freedoms of religion,
speech, and the press, and the rights to assemble peaceably and to petition the government.

CHAPTER 2: CONSTITUTIONAL LAW 35

A. LIMITS ON BOTH FEDERAL AND STATE GOVERNMENTAL ACTIONS

Most of the rights and liberties set out in the Bill of Rights apply to the states through the due pro-
cess clause of the Fourteenth Amendment with the United States Supreme Court determining the

parameters.
ANSWER TO CRITICAL ANALYSIS QUESTION IN THE FEATURE—

BEYOND OUR BORDERS

Should U.S. courts, and particularly the United States Supreme Court look to the other
nations’ laws for guidance when deciding important issues— including those involving
rights granted by the Constitution? If so, what impact might this have on their decisions?
Explain. U.S. courts should consider foreign law when deciding issues of national importance because
changes in views on those issues is not limited to domestic law. How other jurisdictions and other
nations regulate those issues can be informative, enlightening, and instructive, and indicate possibilities
that domestic law might not suggest. U.S. courts should not consider foreign law when deciding issues of
national importance because it can be misleading and irrelevant in our domestic and cultural context.

36 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS

B. THE FIRST AMENDMENT—FREEDOM OF SPEECH
The freedoms guaranteed by the First Amendment cover symbolic speech (gestures, clothing, and so
on) if a reasonable person would interpret the conduct as conveying a message.
1. Reasonable Restrictions
A balance must be struck between the government‟s obligation to protect its citizens and those
citizens‟ exercise of their rights. If a restriction imposed by the government is content neutral
(aimed at combating a societal problem such as crime, not aimed at suppressing expressive
conduct or its message), then a court may allow it.
2. Corporate Political Speech
Speech that otherwise would be protected does not lose that protection simply because its
source is a corporation. For example, corporations cannot be entirely prohibited from making
political contributions that individuals are permitted to make. Corporations may, however, be
prohibited from using corporate funds to make independent expressions of opinion about
political candidates.
3. Commercial Speech
Freedom-of-speech cases generally distinguish between commercial and noncommercial
messages. Commercial speech is not protected as extensively as noncommercial speech. Even
if commercial speech concerns a lawful activity and is not misleading, a restriction on it will
generally be considered valid as long as the restriction (1) seeks to implement a substantial
government interest, (2) directly advances that interest, and (3) goes no further than necessary
to accomplish its objective.

CASE SYNOPSIS—

Case 2.2: Bad Frog Brewery, Inc. v. New York State Liquor Authority
Bad Frog Brewery, Inc., sells alcoholic beverages with labels that display a frog making a gesture
known as “giving the finger.” Bad Frog‟s distributor, Renaissance Beer Co., applied to the New York
State Liquor Authority (NYSLA) for label approval, required before the beer could be sold in New York.

The NYSLA denied the application, in part because children might see the labels in grocery and conven-
ience stores. Bad Frog filed a suit in a federal district court against the NYSLA, asking for, among other

things, an injunction against this denial. The court granted a summary judgment in favor of the
NYSLA. Bad Frog appealed.
The U.S. Court of Appeals for the Second Circuit reversed. The NYSLA‟s ban on the use of the labels
lacked a “reasonable fit” with the state‟s interest in shielding minors from vulgarity, and the NYSLA did
not adequately consider alternatives to the ban. “In view of the wide currency of vulgar displays

throughout contemporary society, including comic books targeted directly at children, barring such dis-
plays from labels for alcoholic beverages cannot realistically be expected to reduce children‟s exposure to

such displays to any significant degree.” Also, there were “numerous less intrusive alternatives.”
………………………………………………………………………………………………………………………………..

CHAPTER 2: CONSTITUTIONAL LAW 37

Notes and Questions

The free flow of commercial information is essential to a free enterprise system. Individually and as
a society, we have an interest in receiving information on the availability, nature, and prices of products
and services. Only since 1976, however, have the courts held that communication of this information
(“commercial speech”) is protected by the First Amendment.
Because some methods of commercial speech can be misleading, this protection has been limited,
particularly in cases involving in-person solicitation. For example, the United States Supreme Court has
upheld state bans on personal solicitation of clients by attorneys. Currently, the Supreme Court allows
each state to determine whether or not in-person solicitation as a method of commercial speech is
misleading and to restrict it appropriately.
Whose interests are advanced by banning certain ads? The government‟s interests are
advanced when certain ads are banned. For example, in the Bad Frog case, the court acknowledged, by
advising the state to restrict the locations where certain ads could be displayed, that banning of “vulgar
and profane” advertising from children‟s sight arguably advanced the state‟s interest in protecting
children from those ads.

ANSWER TO “WHAT IF THE FACTS WERE DIFFERENT?” IN CASE 2.2
If Bad Frog had sought to use the label to market toys instead of beer, would the
court’s ruling likely have been the same? Probably not. The reasoning underlying the court‟s
decision in the case was, in part, that “the State‟s prohibition of the labels . . . does not materially
advance its asserted interests in insulating children from vulgarity . . . and is not narrowly tailored to
the interest concerning children.” The court‟s reasoning was supported in part by the fact that children
cannot buy beer. If the labels advertised toys, however, the court‟s reasoning might have been different.

ADDITIONAL CASES ADDRESSING THIS ISSUE—

Recent cases involving the constitutionality of government restrictions on
advertising under the commerce clause include the following.
• Cases in which restrictions on advertising were held unconstitutional include Thompson v. Western
States Medical Center, __ U.S. __, 122 S.Ct. 1497, 152 L.Ed.2d 563 (2002) (restrictions on advertising of
compounded drugs); and This That and Other Gift and Tobacco, Inc. v. Cobb County, 285 F.3d 1319 (11th
Cir. 2002) (restrictions on advertising of sexual devices).
• Cases in which restrictions on advertising were held not unconstitutional include Long Island Board
of Realtors, Inc. v. Inc. Village of Massapequa Park, 277 F.3d 622 (2d Cir. 2002) (restrictions on signs in
residential areas); Borgner v. Brooks, 284 F.3d 1204 (11th Cir. 2002) (restrictions on dentists‟ ads);

Genesis Outdoor, Inc. v. Village of Cuyahoga Heights, __ Ohio App.3d __, __ N.E.2d __ (8 Dist. 2002) (re-
strictions on billboard construction); and Johnson v. Collins Entertainment Co., 349 S.C. 613, 564 S.E.2d

38 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS

653 (2002) (restrictions on offering special inducements in video gambling ads).
4. Unprotected Speech
Constitutional protection has never been afforded to certain classes of speech—“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.”
Obscene material is unprotected. The United States Supreme Court has held that material is
obscene if (1) the average person finds that it violates contemporary community standards; (2)
the work taken as a whole appeals to a prurient interest in sex; (3) the work shows patently
offensive sexual conduct; and (4) the work lacks serious redeeming literary, artistic, political, or
scientific merit. Aside from child pornography, however, there is little agreement about what
material qualifies as obscene.
5. Online Obscenity
Portions of the Communications Decency Act of 1996 were struck as unconstitutional. The
Child Online Protection Act of 1998 has been suspended. The “community” of the Internet is
“nationwide”—too large for applying the “standards of the community” test, which thereby
restricts non-pornographic materials. The Children‟s Internet Protection Act of 2000, which
requires libraries to use filters, was held to be not unconstitutional.
ANSWER TO CRITICAL ANALYSIS QUESTION IN THE FEATURE—
ADAPTING THE LAW TO THE ONLINE ENVIRONMENT

Why should it be illegal to “pander” virtual child pornography when it is not illegal to
possess it? This is a question of social policy and political belief. Those who believe that the First
Amendment protects all speech might argue that neither the possession nor the pandering of
pornography of any kind should be restricted. The purpose for the prohibition of child pornography is the
protection of children. Those who believe that children should be as protected as possible from exposure
to pornography of all kinds might argue that possession should be as illegal as pandering. Between these
extremes are the difficulties of defining, perceiving, and weighing the competing interests of individuals,
society, and government. Currently, the balance has been struck at allowing possession—on the
reasoning that the images are not real—and banning pandering—with the goal of limiting distribution.
C. FREEDOM OF RELIGION
1. The Establishment Clause
Under the establishment clause, the government cannot establish a religion nor promote,
endorse, or show a preference for any religion. Federal or state regulation that does not
promote, or place a significant burden on, religion is constitutional even if it has some impact
on religion. This clause mandates accommodation of all religions and forbids hostility toward
any.

CHAPTER 2: CONSTITUTIONAL LAW 39

CASE SYNOPSIS—

Case 2.3: In re Episcopal Church Cases

The Episcopal Church in New Hampshire ordained a gay man as bishop. Members of St. James
Parish did not agree with this ordination. St. James voted to end its affiliation with the Episcopal
Church. A dispute then arose as to who owned the church building that the parish used for worship and
the property on which it stands. The Episcopal Church and others filed a suit in a California state court
against St. James and others, with both sides claiming ownership. The court ruled that the parish owned
the building and the property, but a state intermediate appellate court reversed. St. James appealed.
The California Supreme Court affirmed. The First Amendment prohibits state courts from deciding
questions of religious doctrine. But to the extent that a secular court can resolve a property dispute
without referring to church doctrine, it should apply “neutral principles of law.” The court should
consider the deeds to the property, the local church‟s governing documents, the general church’s
constitution, canons, and rules, and other relevant sources, including state statutes. Although the deeds
to the property in this case had long been in the name of the parish, the local church agreed from the
beginning of its existence to be part of the greater church and to be bound by its governing documents.
Those documents clearly state that church property is held in trust for the general church and may be
controlled by the local church only so long as it remains a part of the general church. When St. James
disaffiliated from the Episcopal Church, it did not have the right to take church property with it.
………………………………………………………………………………………………………………………………..

Notes and Questions

Should a secular court ever accept and apply ecclesiastical rules, customs, or laws? Yes.
Most churches have a hierarchical structure—a “religious congregation which is itself part of a large and
general organization of some religious denomination, with which it is more or less intimately connected
by religious views and ecclesiastical government” in the words of the United States Supreme Court—and
a court must recognize this fact. When “questions of discipline, or of faith, or ecclesiastical rule, custom,
or law have been decided by the highest of these church judicatories to which the matter has been
carried, the legal tribunals must accept such decisions as final, and as binding on them, in their
application to the case before them.”
Thus when examining a church document such as the trust document in the Episcopal case to resolve
a property dispute, a secular court must “scrutinize the document in purely secular terms, and not * * *
rely on religious precepts in determining whether the document indicates that the parties have intended
to create a trust.” But “there may be cases where the deed, the corporate charter, or the constitution of
the general church incorporates religious concepts in the provisions relating to the ownership of
property. If in such a case the interpretation of the instruments of ownership would require the civil
court to resolve a religious controversy, then the court must defer to the resolution of the doctrinal issue
by the authoritative ecclesiastical body.”

40 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS

What are the advantages of the “neutral principles of law” approach applied in this
case? According to the United States Supreme Court] “the primary advantages of the neutral-principles
approach are that it is completely secular in operation, and yet flexible enough to accommodate all forms
of religious organization and polity. The method relies exclusively on objective, well-established concepts
of * * * law familiar to lawyers and judges. It thereby promises to free civil courts completely from
entanglement in questions of religious doctrine, polity, and practice. Furthermore, the neutral-principles
analysis shares the peculiar genius of private-law systems in general—flexibility in ordering private
rights and obligations to reflect the intentions of the parties. Through appropriate * * * provisions,
religious societies can specify what is to happen to church property in the event of a particular
contingency, or what religious body will determine the ownership in the event of a schism or doctrinal
controversy. In this manner, a religious organization can ensure that a dispute over the ownership of
church property will be resolved in accord with the desires of the members.”

ANSWER TO CRITICAL ANALYSIS QUESTION IN CASE 2.3
Should the court have considered whether the Episcopal Church abandoned or departed
from the tenets of faith and practice that it held at the time of St, James’s affiliation? Why
or why not? No. The First Amendment prohibits a court from considering religious doctrinal matters.
Thus, a right to property used by a local church cannot be made to turn on a decision as to whether the
general church followed or changed the tenets of its faith and practice over time. Under the U.S.
Constitution, a secular court has no role in determining ecclesiastical questions such as the
interpretation of particular church doctrines and the importance of those doctrines to the religion.
2. The Free Exercise Clause
Under the free exercise clause, the government cannot prohibit the free exercise of religious
practices. In other words, a person cannot be compelled to do something contrary to his or her
religious practices unless they contravene public policy or public welfare.

III. Due Process and Equal Protection
A. DUE PROCESS
Both the Fifth and the Fourteenth Amendments provide that no person shall be deprived “of life,
liberty, or property, without due process of law.”
ANSWER TO LEARNING OBJECTIVE/FOR REVIEW QUESTION NO. 5
Where in the Constitution can the due process clause be found? Both the Fifth and the

Fourteenth Amendments to the U.S. Constitution provide that no person shall be deprived “of life, lib-
erty, or property, without due process of law.” The due process clause of each of these constitutional

amendments has two aspects—procedural and substantive.

CHAPTER 2: CONSTITUTIONAL LAW 41

1. Procedural Due Process
A government decision to take life, liberty, or property must be made fairly. Fair procedure
has been interpreted as requiring that the person have at least an opportunity to object to a
proposed action before a fair, neutral decision maker (who need not be a judge).
2. Substantive Due Process
If a law or other governmental action limits a fundamental right, it will be held to violate
substantive due process unless it promotes a compelling or overriding state interest.
Fundamental rights include interstate travel, privacy, voting, and all First Amendment rights.
Compelling state interests could include, for example, public safety. In all other situations, a
law or action does not violate substantive due process if it rationally relates to any legitimate
governmental end.
B. EQUAL PROTECTION
Under the Fourteenth Amendment, a state may not “deny to any person within its jurisdiction the
equal protection of the laws.” The equal protection clause applies to the federal government through
the due process clause of the Fifth Amendment. Equal protection means that the government must
treat similarly situated individuals in a similar manner. When a law or action distinguishes
between or among individuals, the basis for the distinction (the classification) is examined.
1. Strict Scrutiny

If the law or action inhibits some persons‟ exercise of a fundamental right or if the classifica-
tion is based on a race, national origin, or citizenship status, the classification is subject to

strict scrutiny—it must be necessary to promote a compelling interest.
2. Intermediate Scrutiny

Intermediate scrutiny is applied in cases involving discrimination based on gender or legiti-
macy. Laws using these classifications must be substantially related to important government

objectives.
3. The “Rational Basis” Test
In matters of economic or social welfare, a classification will be considered valid if there is any

conceivable rational basis on which the classification might relate to any legitimate govern-
ment interest.

IV. Privacy Rights
Invasion of another‟s privacy is also a civil wrong (Chapter 4), and federal laws protect the privacy of
individuals in several areas. In business, issues of privacy often arise in the employment context
(Chapter 24). Problems concerning privacy in the contexts of the Internet and computer use in the
workplace are identified in the text. Consumers‟ privacy rights online are covered further in Chapter 33.
A. CONSTITUTIONAL PROTECTION OF PRIVACY RIGHTS
A personal right to privacy is held to be so fundamental as to apply at both the state and the federal
level. Although there is no specific guarantee of a right to privacy in the Constitution, such a right
has been derived from guarantees found in the First, Third, Fourth, Fifth, and Ninth Amendments.

42 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS

B. FEDERAL STATUTES PROTECTING PRIVACY RIGHTS
These statutes include the Freedom of Information Act of 1966, the Privacy Act of 1974, the Driver‟s
Privacy Protection Act of 1994, the Health Insurance Portability and Accountability Act of 1996, and
other laws listed in the text.

ADDITIONAL BACKGROUND—

USA PATRIOT Act Tech Provisions

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act (USA PATRIOT Act) of 2001, which is mentioned in the text, touches on many
topics, including immigration, money laundering, terrorism victim relief, intelligence gathering, and
surveillance of Internet communications. Technology related provisions of the USA PATRIOT Act
include the following, as summarized. (Some of these provisions were due to “sunset” in 2005.)

Wiretap Offenses

Sections 201 and 202—Crimes that can serve as a basis for law enforcement agencies (LEAs) to obtain a
wiretap include crimes relating to terrorism and crimes relating to computer fraud and abuse.

Voice Mail
Section 209—LEAs can seize voice mail messages, with a warrant.
ESP Records

Sections 210 and 211—LEAs can obtain, with a subpoena, such information about e-communications
service providers‟ (ESPs) subscribers as “name,” “address,” “local and long distance telephone connection
records, or records of session times and durations,” “length of service (including start date) and types of
service utilized,” “telephone or instrument number or other subscriber number or identity, including any
temporarily assigned network address,” and “means and source of payment for such service (including
any credit card or bank account number).”

Pen Registers, and Trap and Trace Devices

Section 216—LEAs can expand their use of pen registers and trap and trace devices (PR&TTs). A PR
records the numbers that are dialed on a phone. TTs “capture[] the incoming electronic or other impulses
which identify the originating number of an instrument or device from which a wire or electronic
communication was transmitted.” PR&TTs can be used to capture routing, addressing, and other
information in e-communications, but not the contents of the communication. This is considered one of
the key sections of the act.

Computer Trespassers

Section 217—LEAs can assist companies, universities, and other entities that are subject to distributed
denial of service, or other, Internet attacks by intercepting “computer trespasser‟s communications.”

ESP Compensation

Section 222—An ESP “who furnishes facilities or technical assistance pursuant to section 216 shall be

CHAPTER 2: CONSTITUTIONAL LAW 43

reasonably compensated for such reasonable expenditures incurred in providing such facilities or
assistance.”

ENHANCING YOUR LECTURE—

 CREATING A WEB SITE PRIVACY POLICY 
Firms with online business operations realize that to do business effectively with their customers,
they need to have some information about those customers. Yet online consumers are often reluctant to
part with personal information because they do not know how that information may be used. To allay
consumer fears about the privacy of their personal data, as well as to avoid liability under existing laws,
most online businesses today are taking steps to create and implement Web site privacy policies.

PRIVACY POLICY GUIDELINES

In the last several years, a number of independent, nonprofit organizations have developed model
Web site privacy policies and guidelines for online businesses to use. Web site privacy guidelines are
now available from a number of online privacy groups and other organizations, including the Online
Privacy Alliance, the Internet Alliance, and the Direct Marketing Association. Some organizations,

including the Better Business Bureau, have even developed a “seal of approval” that Web-based busi-
nesses can display at their sites if they follow the organization‟s privacy guidelines.

One of the best known of these organizations is TRUSTe. Web site owners that agree to TRUSTe‟s
privacy standards are allowed to post the TRUSTe “seal of approval” on their Web sites. The idea behind
the seal, which many describe as the online equivalent of the “Good Housekeeping Seal of Approval,” is
to allay users‟ fears about privacy problems.

DRAFTING A PRIVACY POLICY

Online privacy guidelines generally recommend that businesses post notices on their Web sites about
the type of information being collected, how it will be used, and the parties to whom it will be disclosed.
Other recommendations include allowing Web site visitors to access and correct or remove personal
information and giving visitors an “opt-in” or “opt-out” choice. For example, if a user selects an “opt-out”
policy, the personal data collected from that user would be kept private.
In the last several years, the Federal Trade Commission (FTC) has developed privacy standards that
can serve as guidelines. An online business that includes these standards in its Web site privacy
policies—and makes sure that they are enforced—will be in a better position to defend its policy should
consumers complain about the site‟s practices to the FTC. The FTC standards are incorporated in the
following checklist.

CHECKLIST FOR A WEB SITE PRIVACY POLICY

1. Include on your Web site a notice of your privacy policy.

44 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS

2. Give consumers a choice (such as opt-in or opt-out) with respect to any information collected.
3. Outline the safeguards that you will employ to secure all consumer data.
4. Let consumers know that they can correct and update any personal information collected by your
business.
5. State that parental consent is required if a child is involved.
6. Create a mechanism to enforce the policy.

TEACHING SUGGESTIONS

1. The concept of federalism is basic to students‟ understanding of the authority of the federal and state
governments to regulate business. The Constitution has a significantly different impact on the
regulation of business by the federal government that it does on the regulation of business by state
governments. Emphasize that the federal government was granted specific powers by the states in the
Constitution while the states retained the police power.

2. The commerce clause has become a very broad source of power for the federal government. It also re-
stricts the power of the states to regulate activities that result in an undue burden on interstate

commerce. Determining what constitutes an undue burden can be difficult. A court balances the benefit
that the state derives from its regulation against the burden it imposes on commerce. The requirements
for a valid state regulation under the commerce clause are (1) that it serve a legitimate end and (2) that
its purpose cannot be accomplished as well by less discriminatory means. To illustrate the balance, use a

hypothetical involving a statute designed to protect natural resources. (Explain that this is an area tra-
ditionally left open to state regulation; that is, it is not considered preempted by a federal scheme of

regulation.) For example, imagine a statute banning the importation of baitfish. The ban is a burden on
interstate commerce, but the statute‟s concern is to protect the state‟s fish from nonnative predators and
parasites, and there is no satisfactory way to inspect imported baitfish for parasites. This statute would
likely be upheld as legitimate.

3. It might be explained to your students that constitutional law is concerned primarily with the ex-
ercise of judicial review. The emphasis is on the way that the courts in general, and the United States

Supreme Court in particular, interpret provisions of the Constitution. Stare decisis does not have as
much impact in constitutional law as in other areas of the law. In this area, the courts are not reluctant
to overrule statutes, regulations, precedential case law, or other law.
Cyberlaw Link

Ask your students to consider the following issue. In most circumstances, it is not constitutional for
the government to open private mail. Why is it then sometimes considered legal for the gov-

CHAPTER 2: CONSTITUTIONAL LAW 45

ernment to open e-mail between consenting adults?

DISCUSSION QUESTIONS
1. What is the basic structure of the American national government? The basic structure of the
American government is federal—a form of government in which states form a union and power is shared with a
central authority. The United States Constitution sets out the structure, powers, and limits of the government.
2. What is the national government’s relation to the states? The relationship between the national
and state governments is a partnership. Neither is superior to the other except as the Constitution provides.
When conflicts arise as to which government should be exercising power in a particular area, the United States
Supreme Court decides which governmental system is empowered to act under the Constitution.

3. What is the doctrine of separation of powers and what is its purpose? Each of the three gov-
ernmental branches—executive, legislative, and judicial—performs a separate function. Each branch has some

power to limit the actions of the others. This system of checks and balances prevents any branch from becoming
too powerful.
4. What is the conflict between the states’ police power and the commerce clause? The term
police power refers to the inherent right of the states to regulate private activities within their own borders to
protect or promote the public order, health, safety, morals, and general welfare. When state regulation
encroaches on interstate commerce—which Congress regulates under the commerce clause—the state‟s interest
in the merits and purposes of the regulation must be balanced against the burden placed on interstate
commerce.

5. What is preemption? Preemption occurs when Congress chooses to act exclusively in an area of con-
current federal and state powers, and a valid federal law will override a conflicting state or local law on the same

general subject. Generally, if a federal law is so pervasive, comprehensive, or detailed that the states have no
room to supplement it, the federal law will be held to have preempted the area. When a federal statute creates
an agency to enforce the law, matters within the agency‟s jurisdiction will likely preempt state law.

6. What is the distinction between the degrees of regulation that may be imposed on commer-
cial and noncommercial speech? Commercial speech is not as protected as noncommercial speech. Even if

commercial speech concerns a lawful activity and is not misleading, a restriction on it will generally be
considered valid as long as the restriction (1) seeks to implement a substantial government interest, (2) directly
advances that interest, and (3) goes no further than necessary to accomplish its objective. As for noncommercial
speech, the government cannot choose what are and what are not proper subjects.

46 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS

7. Should the First Amendment protect all speech? One argument in support of this suggestion is
that all views could then be fully expressed, and subject to reasoned consideration, in the “marketplace of ideas”
without the chilling effect of legal sanctions. One argument against this suggestion is exemplified by the yelling
of “Fire!” in a crowded theater: there are statements that are too inflammatory to be allowed unfettered
expression.
8. What does it mean that under the establishment clause the government cannot establish
any religion or prohibit the free exercise of religious practices? Federal or state regulation that does
not promote, or place a significant burden on, religion is constitutional even if it has some impact on religion.
The clause mandates accommodation of all religions and forbids hostility toward any.
9. Would a state law imposing a fifteen-year term of imprisonment without allowing a trial on
all businesspersons who appear in their own television commercials be a violation of substantive
due process? Would it violate procedural due process? Yes, the law would violate both types of due
process. The law would be unconstitutional on substantive due process grounds, because it abridges freedom of
speech. The law would be unconstitutional on procedural due process grounds, because it imposes a penalty
without giving an accused a chance to defend his or her actions.
10. What are the tests used to determine whether a law comports with the equal protection
clause? Equal protection means that the government must treat similarly situated individuals in a similar
manner. Equal protection requires review of the substance of a law or other government action instead of the
procedures used. If the law distinguishes between or among individuals, the basis for the distinction is
examined. If the law inhibits some persons‟ exercise of a fundamental right or if the classification is based on race,
national origin, or citizenship status, the classification must be necessary to promote a compelling interest. In
matters of economic or social welfare, a classification will be upheld if there is any rational basis on which it
might relate to any legitimate government interest. Laws using classifications that discriminate on the basis of
gender or legitimacy must be substantially related to important government objectives. When a law or action limits
the liberty of all persons, it may violate substantive due process; when a law or action limits the liberty of some
persons, it may violate the equal protection clause.
ACTIVITY AND RESEARCH ASSIGNMENTS
1. Have students look through the local newspaper for current stories about proposed laws. Ask them

where the government would find the authority within the Constitution to adopt a specific law under considera-
tion.

2. Would the ten amendments in the Bill of Rights be part of the Constitution if it were intro-
duced today? Have students phrase the Bill of Rights in more contemporary language and poll their friends,

CHAPTER 2: CONSTITUTIONAL LAW 47

neighbors, and relatives as to whether they would support such amendments to the Constitution. If not, what
rights might they be willing to guarantee?
EXPLANATIONS OF SELECTED FOOTNOTES IN THE TEXT
Footnote 3: The regulation in Wickard v. Filburn involved a marketing quota. The Supreme Court
upheld the regulation even though it would be difficult for the farmer alone to affect interstate commerce. Total
supply of wheat clearly affects market price, as does current demand for the product. The marketing quotas
were designed to control the price of wheat. If many farmers raised wheat for home consumption, they would

affect both the supply for interstate commerce and the demand for the product. The Court deferred to congres-
sional judgment concerning economic effects and the relationship between local activities and interstate com-
merce. This was a return to the broad view of the commerce power that John Marshall had defined in Gibbons v.

Ogden, 22 U.S. (9 Wheat.) 1, 6 L.Ed. 23 (1824).
Footnote 9: Domaine Alfred, a small winery in California, received requests for its wine from
Michigan consumers but could not fill the orders because of that state‟s direct-shipment ban. The Swedenburg
Estate Vineyard, a small winery in Virginia, was unable to fill orders from New York because of that state‟s
laws. Domaine and others filed a suit in a federal district court against Michigan and others, contending that its
laws violated the commerce clause. The court upheld the laws, but on appeal, the U.S. Court of Appeals for the
Sixth Circuit reversed this ruling. Swedenburg and others filed a suit in a different federal district court against
New York and others, arguing that its laws violated the commerce clause. The court issued a judgment in the
plaintiffs‟ favor, but the U.S. Court of Appeals for Second Circuit reversed this judgment. Both cases were
appealed to the United States Supreme Court. In Granholm v. Heald, the United States Supreme Court held
that state restrictions on out-of-state wineries‟ direct shipments to consumers violate the dormant commerce
clause because “they mandate differential treatment of in-state and out-of-state economic interests that benefits
the former and burdens the latter.” In this case, “New York, like Michigan, discriminates against interstate
commerce through its direct-shipping laws.” The Court affirmed the judgment of the U.S. Court of Appeals for
the Sixth Circuit, which invalidated the Michigan laws, and reversed the judgment of the U.S. Court of Appeals
for the Second Circuit, which upheld the New York laws.
The Twenty-First Amendment to the U.S. Constitution provides that the “transportation or importation
into any State, Territory, or possession of the United Sates for delivery or use therein of intoxicating liquors, in
violation of the laws thereof, is hereby prohibited.” Doesn’t this allow states to enforce discriminatory
liquor regulations? The Court said no—state regulation of alcohol is limited by the nondiscrimination principle

of the commerce clause. State laws violating other provisions of the Constitution are not saved by the Twenty-
First Amendment, which does not abrogate Congress‟s commerce clause power with regard to liquor. The Court

explained in part that the “central purpose” of the amendment “was not to empower States to favor local liquor
industries by erecting barriers to competition.”
Suppose that the state had only required the out-of-state wineries to obtain a special
license that was readily available. How might this have affected the result in this case? Explain.

48 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS

The effect of this requirement on interstate commerce would have been subject to scrutiny and the result might
have depended on its economic impact and other considerations. It seems unlikely that this type of regulation
would have as heavily burdened the interstate sale of wine as the requirements at issue in this case, but in some
cases, even slight infringements on interstate commerce have been invalidated.
Footnote 16: At a school-sanctioned and school-supervised event, a high school principal saw some of
her students unfurl a banner conveying a message that she regarded as promoting illegal drug use. Consistent
with school policy, which prohibited such messages at school events, the principal told the students to take down
the banner. One student refused. The principal confiscated the banner and suspended the student. The student
filed a suit in a federal district court against the principal and others, alleging a violation of his rights under the
U.S. Constitution. The court issued a judgment in the defendants‟ favor. On the student‟s appeal, the U.S. Court
of Appeals for the Ninth Circuit reversed. The defendants appealed. In Morse v. Frederick, the United States
Supreme Court reversed the lower court‟s judgment and remanded the case. The Supreme Court viewed this set
of facts as a “school speech case.” The Court acknowledged that the message on Frederick‟s banner was “cryptic,”
but interpreted it as advocating the use of illegal drugs. Congress requires schools to teach students that this use
is “wrong and harmful.” Thus it was reasonable for the principal in this case to order the banner struck.
Did—or should—the Court rule that Frederick’s speech can be proscribed because it is
“plainly offensive”? The petitioners (Morse and the school board) argued for this rule. The Court, however,
stated, “We think this stretches [previous case law] too far; that case [law] should not be read to encompass any
speech that could fit under some definition of „offensive.‟ After all, much political and religious speech might be
perceived as offensive to some. The concern here is not that Frederick’s speech was offensive, but that it was
reasonably viewed as promoting illegal drug use.”
ANSWERS TO ESSAY QUESTIONS IN
STUDY GUIDE TO ACCOMPANY BUSINESS LAW TODAY, NINTH EDITION
1. What is the effect of the supremacy clause? The supremacy clause of the Constitution provides
that the Constitution, laws, and treaties of the United States are the supreme law of the land. When there is a
conflict between a federal law and a state law, the state law is invalidated. Thus, a federal action under a power
delegated to the federal government by the Constitution prevails over a state law on the same matter. A federal

regulatory scheme supersedes state law when they conflict or when state regulation interferes with federal ob-
jectives.

2. What is the significance of the commerce clause? The commerce clause is a provision in the
Constitution authorizing Congress to regulate commerce with foreign nations, commerce between states, and
commerce that affects interstate commerce. The commerce clause has had a greater impact on business than
any other provision in the Constitution. This power ensures uniformity of the law concerning the movement of
goods through the states. The breadth of the power allows the federal government to legislate in areas in which
there is no express grant of power to Congress.

CHAPTER 2: CONSTITUTIONAL LAW 49

REVIEWING—

 CONSTITUTIONAL LAW 
A state legislature enacted a statute that required any motorcycle operator or passenger on the
state‟s highways to wear a protective helmet. Jim Alderman, a licensed motorcycle operator, sued the
state to block enforcement of the law. Alderman asserted that the statute violated the equal protection
clause because it placed requirements on motorcyclists that were not imposed on other motorists. Ask
your students to answer the following questions, using the information presented in the chapter.
1. Why does this statute raise equal protection issues instead of substantive due process
concerns? When a law or action limits the liberty of some persons but not others, it may violate the
equal protection clause. Here, because the law applies only to motorcycle operators and passengers, it
raises equal protection issues.
2. What are the three levels of scrutiny that the courts use in determining whether a law
violates the equal protection clause? The three levels of scrutiny that courts apply to determine
whether the law or action violates equal protection are strict scrutiny (if fundamental rights are at
stake), intermediate scrutiny (in cases involving discrimination based on gender or legitimacy), and the
“rational basis” test (in matters of economic or social welfare).
3. Which standard, or test, would apply to this situation? Why? The court would likely apply
the rational basis test, because the statute regulates a matter of social welfare by requiring helmets.
Similar to seat-belt laws and speed limits, a helmet statute involves the state‟s attempt to protect the
welfare of its citizens. Thus, the court would consider it a matter a social welfare and require that it be
rationally related to a legitimate government objective.
4. Applying this standard, or test, is the helmet statute constitutional? Why or why not?
The statute is probably constitutional, because requiring helmets is rationally related to a legitimate
government objective (public health and safety). Under the rational basis test, courts rarely strike down
laws as unconstitutional, and this statute will likely further the legitimate state interest of protecting
the welfare of citizens and promoting safety.



EXAMPREP—

 ISSUE SPOTTERS 

50 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS

1. Can a state, in the interest of energy conservation, ban all advertising by power utilities
if conservation could be accomplished by less restrictive means? Why or why not? No. Even
if commercial speech is not related to illegal activities nor misleading, it may be restricted if a state has a
substantial interest that cannot be achieved by less restrictive means. In this case, the interest in
energy conservation is substantial, but it could be achieved by less restrictive means. That would be the
utilities‟ defense against the enforcement of this state law.

2. Would it be a violation of equal protection for a state to impose a higher tax on out-of-
state companies doing business in the state than it imposes on in-state companies if the

only reason for the tax is to protect the local firms from out-of-state competition? Explain.
Yes. The tax would limit the liberty of some persons (out of state businesses), so it is subject to a review
under the equal protection clause. Protecting local businesses from out-of-state competition is not a
legitimate government objective. Thus, such a tax would violate the equal protection clause.



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