Lochner v. New York and economic liberty: Give the government an inch, and it takes a mile

Alexandria, VA – November 9, 2015

Let’s talk about one of my favorite constitutional law cases: Lochner v. New York, a 1905 Supreme Court decision, which highlights the freedom to contract. None other than Republican presidential candidate Rand Paul praised the Lochner decision in his 2013 filibuster.

In my Washington, DC legal circles, you either love this case or you hate it. I love it; to me, it highlights fundamental economic rights protected by the Constitution, and makes the case for treating people intelligently, not as morons who need the government involved in every aspect of their lives.

Let’s set the stage. Article I, Section 10, of the U.S. Constitution, indicates that:

“No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.”

No State shall “pass any…Law impairing the Obligation of Contracts…”

The government shall not interfere in the private making of contracts.

Now, the Constitution does not explicitly mention a right to contract. However, the Court has found many so-called unenumerated rights to be protected under the Constitution, even if not explicitly indicated (e.g. right to privacy, etc.).

Well, okay, the government “interferes” in some contracts, which are illegal (e.g. contracts for illegal drugs, which would be unenforceable, etc.). But, generally speaking, the government has no business interfering in bargained-for exchanges between private parties.

That is what Lochner is about. But, as we will soon see, give the government an inch, and it takes a mile.

All right, let’s delve into the case.

The Institute for Justice summarizes the New York state law at issue (see http://ij.org/center-for-judicial-engagement/programs/engagement-in-action/lochner-v-new-york-1905/):

An 1895 law called the Bakeshop Act prohibited New Yorkers from working in a bakery more than 10 hours in one day or 60 hours per week and made it a criminal offense to employ a worker for more than 60 hours a week. Although presented as a health measure, the maximum-hours law contained a number of suspicious exemptions, such as not applying to bakers who worked in pie bakeries, hotel and restaurant kitchens, clubs or boarding houses.

More plausibly, the law was the product of a zealous lobbying effort on the part of large factory bakeries and their unionized staff who sought to limit competition from recent immigrants who made up for their lack of mechanized facilities by working longer hours. Joseph Lochner was convicted under the act for permitting an employee to work longer than 60 hours in one week. He challenged the law under the Due Process Clause of the 14th Amendment.

The state of New York had enacted this law under its state police power.

The Court notes that the New York law “interferes with the right of contract between the employer and employee.” Further, the Court points out that “the general right to make a contract in relation to his business is part of the liberty of the individual protected by the Fourteenth Amendment.”

In sum, if the employee decides to work longer hours to make more money, he should go ahead, as long as his employer is willing to contract for those terms.

To me, this is a simple case. Of course the guy has the right to freely contract to work more than ten hours a day.

The Court here did not determine that states could not enact legislation under their general police power, only that such power has limits.

The state’s argument was that the state has the right to regulate the number of hours worked by a baker, thus interfering with the employee’s right to contract, on the basis that the employee’s health was affected. The Court indicated that “some occupations are more healthy than others, but we think there are none which might not come under the power of the legislature to supervise and control the hours of working therein, if the mere fact that the occupation is not absolutely and perfectly healthy is to confer that right upon the legislative department of the Government. It might be safely affirmed that almost all occupations more or less affect the health.” And the kicker: “There must be more than the mere fact of the possible existence of some small amount of unhealthiness to warrant legislative interference with liberty.” Thank you.

The Court also noted, with concern, the uptick in similar regulation by states: “This interference on the part of the legislatures of the several States with the ordinary trades and occupations of the people seems to be on the increase.”

The Court further noted that “to the common understanding the trade of a baker has never been regarded as an unhealthy one.” Indeed, all jobs pose some element of risk. My desk job is unhealthy because it requires that I sit all day, and sitting causes back pain, hip pain, etc.

Why not simply allow people to work as much as they want, and make informed decisions?

Ultimately, that is what the Court determined, in finding that the state law, limiting the hours of labor, “had no direct relation to and no such substantial effect upon the health of the employee, as to justify us in regarding the section as really a health law.”

The Institute for Justice summarizes the holding:

Ultimately, the U.S. Supreme Court held that the maximum-hours restriction violated the Due Process Clause. The Court found that the law unreasonably restricted workers’ freedom of contract—a freedom with deep roots in the common law—without any legitimate purpose. The Court recognized public health and safety as legitimate interests, but it concluded that the state failed to show that the hours restriction actually did, or was even designed to, further those interests. As Justice Peckham explained, “It is impossible for us to shut our eyes to the fact that many of the laws of this character, while passed under what is claimed to be the police power for the purpose of protecting the public health or welfare, are, in reality, passed from other motives. We are justified in saying so when, from the character of the law and the subject upon which it legislates, it is apparent that the public health or welfare bears but the most remote relation to the law.”

The Court struck down the law, which I think was the correct decision. Liberty prevailed.

However, a mere 30-odd years later, the Court overruled Lochner in West Coast Hotel v. Parrish et al. (1937).

The main issue in Parrish was as follows. The state of Washington had enacted the Minimum Wages for Women Act, which established minimum wages for women (I know you couldn’t tell that by the name of the law), the rationale being that it was a valid exercise of the state’s police power to protect the health and safety of women.

I am not interested here in arguing for or against a minimum wage. What I would like to focus on is the Court’s rationale in applying the reasonableness test to whether the State’s limiting economic liberty, here the freedom to contract, is permissible.

This case came before the Court after a “chambermaid” (I don’t think hotels today use this term) employed by a hotel sued to recover her wages. The hotel countered that the state law was unconstitutional under Lochner.

In deciding to reexamine the law as applied in Lochner and its progeny, the Court indicated:

“The importance of the question, in which many States having similar laws are concerned, […,] and the economic conditions which have supervened, and in the light of which the reasonableness of the exercise of the protective power of the State must be considered, make it not only appropriate, but we think imperative, that in deciding the present case the subject should receive fresh consideration.” (my italics).

Read that closely: current economic conditions have an effect on how the Supreme Court interprets cases. Why should such conditions matter? Only the Constitution matters. And to those of you who think that the Constitution is outdated, the Founders provided mechanisms to change the Constitution, e.g., women were given the right to vote via the 19th Amendment. Of course, it is not supposed to be easy to change the Constitution.

Here, the employer argued that the state law violated his freedom to contract under the Fourteenth Amendment. I am interested here in the Court’s test it applied for limiting economic liberties under the Fourteenth Amendment.

The Court noted: “Liberty under the Constitution is …necessarily subject to the restraints of due process, and regulation which is reasonable in relation to its subject and is adopted in the interests of the community is due process.”

And, continuing, “This essential limitation of liberty in general governs freedom of contract in particular.”

Here is the general test as applied by the Court to this case: “There is no absolute freedom to do as one wills or to contract as one chooses.” I would agree with this, e.g., contracts for illegal goods or services are void as against public policy, etc.

Then, “liberty implies the absence of arbitrary restraint, not immunity from reasonable regulations and prohibitions imposed in the interests of the community.” Yes, liberty is the absence of arbitrary restraint. Okay, so what does the Court mean by “reasonable” and what is a legitimate “interest of the community?”

The Court goes on to note that the freedom to contract can be limited in the public interest, then lists cases where such freedom was so restricted. For example, state statutes have limited working in underground mines to eight hours per day. That sounds reasonable; working in mines limits oxygen; it’s extraordinarily dangerous, etc. State statutes have also prohibited contracts that limited liability for injuries to employees. That also sounds reasonable, since employer negligence could certainly cause injury. State laws have also maintained workers’ compensation laws, which is also reasonable. The Court further notes that states have the general authority to deal with labor issues; indeed, labor, health, and safety are areas of law generally under the purview of the state government. No argument from me there.

But then the Court becomes so paternalistic as to be ridiculous.

First, the Court notes that past court decisions have emphasized “that adult employees should be deemed competent to make their own contracts….” This is absolutely true. We should assume that people are intelligent, not stupid.

But the Court here departs from that assumption. The Court quotes a past case, Holden v. Hardy, in stating that, often, employers and employees do not stand on equal footing when negotiating a contract. That can be the case, but why should we assume that is always the case? The Court here uses this false assumption to go full-on Big Brother.

The Court states, “the fact that both parties are of full age and competent to contract does not necessarily deprive the State of the power to interfere where the parties do not stand upon an equality, or where the public health demands that one party to the contract shall be protected against himself.” Read there: “protected against himself.” That is, even if both parties are competent to contract, and there is no apparent unequal bargaining position, and even if the employee contracts knowing the risks, the government should still be able to interfere in his decision-making. Huh?

And here we go: “The State still retains an interest in his welfare, however reckless he may be. The whole is no greater than the sum of all the parts, and when the individual health, safety, and welfare are sacrificed or neglected, the State must suffer.” Why doesn’t the employee have the right to be “reckless,” as long as he is fully informed?

And since this case is about a minimum-wage law that applied only to women, now cue the anti-feminist language: The State “has a special interest in “the employment of women.”

The Court emphasizes the consideration that “woman’s physical structure and the performance of maternal functions place her at a disadvantage in the struggle for subsistence” and that her physical well being “becomes an object of public interest and care in order to preserve the strength and vigor of the race.” The Court further emphasizes “the need of protecting women against oppression despite her possession of contractual rights. We said that “though limitations upon personal and contractual rights may be removed by legislation, there is that in her disposition and habits of life which will operate against a full assertion of those rights. She will still be where some legislation to protect her seems necessary to secure a real equality of right.” As a woman, I find this language offensive. I am fully capable of asserting my contractual rights; I don’t need the Court’s help. I would prefer if the government stopped interfering in my business. I have rights under the Constitution, and I can assert them if need be. That’s enough.

The Court explained its test as follows: “we again declare that if such laws have a reasonable relation to a proper legislative purpose, and are neither arbitrary nor discriminatory, the requirements of due process are satisfied; that “with the wisdom of the policy adopted, with the adequacy or practicability of the law enacted to forward it, the courts are both incompetent and unauthorized to deal”; that “times without number we have said that the legislature is primarily the judge of the necessity of such an enactment, that every possible presumption is in favor of its validity, and that though the court may hold views inconsistent with the wisdom of the law, it may not be annulled unless palpably in excess of legislative power.”

Well, that’s great. The judicial branch abdicates its constitutional responsibility as a check on the legislative branch. Fantastic.

This test became known as the rational basis test, and we’ll discuss it in more detail in my next post.

In applying the above test, and in upholding the minimum-wage law, the Court found that the legislature of the State was clearly entitled to consider the situation of women in employment, the fact that they are in the class receiving the least pay, that their bargaining power is relatively weak, and that they are the ready victims of those who would take advantage of their “necessitous circumstances.” The Court found that the legislature was “entitled to adopt measures to reduce the evils of the ‘sweating system,’ the exploiting of workers at wages so low as to be insufficient to meet the bare cost of living, thus making their very helplessness the occasion of a most injurious competition.”

Under this broad test, is there anything that the legislature could not regulate in regards to economic activity? It would seem not.

In summary, the Court upheld the law, effectively throwing the Lochner decision out the window and, with it, our economic liberties. From then on, it has been quite easy to regulate economic activity. Just look at all the licensing requirements to which small businesses owners are subject. To wit, the state of Iowa requires hair braiders to spend about $22,000 on 2,100 hours of training in order to be able to braid hair! Click here

I want to point out something very dear to me here. Even if I were in favor of, e.g., a minimum wage-law, I am not willing to shred the Constitution to get there. I’m in favor of protecting national security and having a strong defense too, but I am not willing to violate the Constitution to obtain that end. Think about that. Nowadays, I see a lot of people cheering about Supreme Court decisions that give them the end goal they want, where the decision is not based on the Constitution. The Constitution enshrines a limited government, where each branch checks the other. It is not supposed to be easy to get things done. That is the nature of our government; it is not a dictatorship, and we should be thankful for that.

In my next post, we will see how the rational basis test is watered down even further, so that it basically becomes no test at all.