The Yale Law Journal

VOLUME
126
2016-2017
Forum

Business Licensing and Constitutional Liberty

05 Dec 2016
Amanda Shanor

Claims that the Constitution prohibits business licensing requirements have proliferated in recent years. The U.S. Court of Appeals for the District of Columbia Circuit recently concluded that a District requirement that tour guides obtain business licenses violated the First Amendment.1 The Sixth Circuit likewise held that a licensing scheme for funeral directors violated due process and equal protection under the Fourteenth Amendment.2 These cases mark a sea change in the treatment of economic liberty claims both by the courts and in U.S. legal culture.

In this Essay, I situate debates over the constitutional treatment of business licensing schemes in larger historical context. Doing so reveals the changing treatment of these schemes to be part of a trend that goes far beyond the regulation of licensing: the Constitution is increasingly being invoked as a trump against certain types of economic regulation. My thesis is that the central arguments currently marshaled in favor of extending stringent judicial review to business licensing regulations are untenable. These lines of reasoning have no logical endpoint. Individual rights, on this view, could trump any manner of governmental regulation in favor of free-market ordering.

These business licensing cases raise deep and pressing questions about the purpose and scope of rights and constitutional judicial review more broadly today. Underlying these debates are competing conceptions of constitutional liberty. One view, perhaps the ascendant one, reflects free-market libertarian values, whereas others understand the First and Fourteenth Amendments to reflect ideals such as democratic self-governance, anti-subordination, or civic republicanism. Resolving disputes about the constitutional status of business licensing requires that we grapple with those deeper questions.

I. a brief history

In the modern era, until recently, business licensing, like most of life, was not the subject of constitutional litigation.3 Regulations requiring you to get a license before working as a doctor, a lawyer, or a candlestick maker (not to mention a tour guide or a securities trader), were instead part of the vast swath of non-constitutionalized economic life. If you did not like the business licensing regime in your area and asked a lawyer for advice, she would most likely have given you tips on how to achieve compliance or perhaps suggested that you organize politically to change the regulation. Challenging the licensing law under the Constitution would not have come to mind.4

Part of why your lawyer would not turn to the Constitution is because, since the 1930s, it has been black letter constitutional law that economic regulation is subject only to rational basis review—generally the most lenient type of explicit constitutional scrutiny. This well-established principle was largely the result of the New Deal settlement.

For several decades before the New Deal, however, the Constitution provided a stronger measure of defense against the regulation of economic life. Often called the Lochner era, that period from the end of the Gilded Age through much of the Great Depression has come to symbolize the judicial striking down of economic regulation. Lochnerism was an obstacle for New Dealers interested in expanding governmental intervention into economic affairs, including in response to the challenges of the Great Depression.5 In the late 1930s, the Court repudiated Lochner, thereby rejecting its prior understanding of liberty and ushering in a more active regulatory state.6 Ever since, it has been generally accepted—if not unchallenged—law that economic regulation is subject only to rational basis review.7

The last two decades have arguably begun to unsettle that well-established principle. First and Fourteenth Amendment challenges to a wide array of economic regulations have proliferated—and many have been met with significant success. In the First Amendment context, plaintiffs across the country are increasingly invoking the Free Speech Clause as a shield against what a generation ago would have been viewed as ordinary economic regulation subject to lax, if any, constitutional review.8 Just this term, for example, the Supreme Court granted certiorari in Expressions Hair Design v. Schneiderman, a First Amendment challenge to the regulation of credit card swipe fees.9 Fast food plaintiffs, too, brought a First Amendment challenge to Seattle’s ordinance raising its minimum wage.10 And a wide array of warning labels and disclosure requirements has been challenged as an infringement on speech—from nutrition labels to cigarette warning labels, to country of origin and sourcing disclosures.11 These examples represent only a small fraction of the recent deluge of free speech challenges to economic regulation.

At the same time, Fourteenth Amendment economic liberty claims are emerging.12 Although support for a return to robust substantive due process review of economic claims is still not generally accepted,13 there are prominent voices in the conservative legal community—some in this collection—that no longer take for granted that Lochner is or should be anticanonical.14

Recent challenges to occupational licensing regimes under the First and Fourteenth Amendments are one facet of these larger trends. Raised as free speech claims, these challenges contribute to broader efforts to expand the scope of the First Amendment in economic life. When brought under the Fourteenth Amendment, occupational licensing cases seek to reinvigorate economic substantive due process and revive Lochner-type principles under their original constitutional hook. In either First or Fourteenth Amendment form, these cases contribute to a moment in which advocates are seeking more stringent review of economic liberty claims.15

Recent occupational licensing cases have provoked considerable disagreement and created several circuit splits. The Fifth Circuit and District of Columbia Circuit have diverged, for instance, over whether a requirement that tour guides acquire a business license violates the First Amendment.16 And the circuits have likewise split over whether, in the context of other business licensing regimes, a desire to favor one intrastate industry or group over another constitutes a rational basis under substantive due process.17 Occupational licensing is being pushed from being largely a non-constitutional issue to being a constitutional one.18

What do we make of this emergent constitutional shift?19 A number of commentators and academics have critiqued these larger trends as Lochner-esqueand therefore, at least implicitly, normatively undesirable.20 That is not my point here. Like David Bernstein, Clark Neily, and a host of other commentators, I do not believe that an accusation of Lochnerism suffices as a normative conclusion about the good of stringent constitutional review.21 Nor can we reach a normative judgment based solely on the historical contention that at an earlier point in history the Court rejected stringent review of the regulation of economic life.22 We must instead ask if, and if so why, that arrangement is justified today.23

The constitutional implications of business licensing schemes present hard questions: Could the government constitutionally prohibit individuals who lack political power from pursuing any remunerative profession? Regardless of one’s perspective, the answer to this question is almost certainly no. But could the government prohibit such an individual from pursuing her chosen profession? And, if so, on what grounds? Those questions present much more difficult cases.

This short piece does not endeavor to define the precise scope of, or circumstances surrounding, any limits on business licensing regimes that may be constitutionally required. Rather, I want to focus on the key constitutional arguments that advocates have marshaled in opposition to such regimes. Leading arguments currently being made—and sometimes accepted by courts—create a host of problems of their own. Resolution of the hard questions surrounding constitutional challenges to business licensing demand at once a broader and more nuanced approach.

II. the untenability of current arguments against the regulation of business licensing

Constitutional challenges to business licensing regimes are most typically brought under the First and/or Fourteenth Amendments. This Part examines the central arguments currently being marshaled by advocates in favor of stringent review of business licensing regimes with respect to each of those constitutional hooks.24

A. Free Speech

First Amendment arguments in favor of robust rights to be free from occupational licensing requirements often focus on “speech” within the business undertaking. Advocates at the forefront of business licensing challenges have argued that certain “speaking occupations” (like, in their view, tour guides or interior designers) should uniquely qualify for stringent First Amendment scrutiny.25 These claims are based on the contention—often implicit and almost never defended—that (1) all “speech is speech,” and (2) all types of “speech” should therefore be subject to the same stringent constitutional review.

Putting aside the rather amorphous issue of what the term “speaking occupations” should be read to encompass, this position raises a serious limiting principle problem. If the “speaking” nature of a profession were sufficient to trigger stringent review of the regulation of that profession, professional conduct such as malpractice and fraud would be entitled to stringent review as well. But neither has been traditionally subject to any First Amendment scrutiny—and advocates of applying more stringent review to the licensing of “speaking professions” generally do not seriously contend it should be.26

Let’s take an example. If I am your doctor, and I recommend we amputate your leg (when, based on prevailing professional norms, we certainly should not), and you later sue me for malpractice, the claim is no less based on words than a tour guide who “speaks” for a living. “But,” you might say, “the malpractice example has a real-world harm—you cut off my leg!” Of course, you would be right. But that harm does not have any analytically different relationship to speech than the sorts of harms—health and safety, say—that licensing seeks to address in the first instance. The harms that may flow from fraud or malpractice are no less related to the “speakingness” of a “speaking occupation.”27

As I and others have explored, it has never been the case that all “speech” or expression has been subject to constitutional review, let alone stringent scrutiny. Most of life, including life in words and expressive activities, falls (at least as a practical, if not analytical matter) entirely outside of the First Amendment’s ambit.28 This includes all variety of activities from the compelled filing of tax returns to ordinary contract law to the discovery rules in federal courts (all words on a page); the regulation of perjury, fraud, and conspiracy; rules about fiduciary duties; much of securities, antitrust, and trademark law; and Title VII’s workplace harassment provisions.

Given the pervasiveness of speech and expression, were it otherwise, the First Amendment could be invoked against nearly any regulation.29 It is not an overstatement to say that treating all words as “speech” entitled to strict constitutional scrutiny would render self-government as a practical matter impossible.30 In concrete terms, it would require either a radical reconfiguration of the modern administrative state—including the drastic curtailing of the work of agencies such as the Securities and Exchange Commission, Federal Trade Commission, and Consumer Financial Protection Bureau—or the significant watering down of stringent review. Advocates in favor of stringent First Amendment protection against business licensing fail to contend with this logical conclusion of their argument.

B. Substantive Due Process

Litigators of the business licensing cases today also seek to strengthen the bite of economic substantive due process by identifying crosscutting bases for economic regulation that can be deemed irrational.31 In so doing, they aim to do away with the rational basis test altogether in favor of more stringent review.32

Their central contention is that licensing regimes implicate a sort of favoritism of one intrastate industry or group over another (say, dentists over teeth whitening businesses). Advocates argue that this difference in treatment should suffice to trigger more searching constitutional scrutiny. At the least, they assert, favoritism should trigger so-called “rational basis with bite,” of the kind applied in cases like City of Cleburne v. Cleburne Living Center and Romer v. Evans in the context of regulations based on animus against a group.33

This argument that any line drawing between groups should necessarily trigger heightened constitutional scrutiny is problematic in several respects. First, if “favoritism,” defined as broadly as advocates urge, were an illegitimate legislative basis, almost any sort of regulation would be suspect. The Supreme Court confronted this issue in Fitzgerald v. Racing Association of Central Iowa, an equal protection challenge to a state law that taxed riverboat slot machines more favorably than racetrack slot machines. The Court applied ordinary rational basis principles and rejected the challenge, explaining that “[a]fter all, if every subsidiary provision in a law designed to help racetracks had to help those racetracks and nothing more, then (since any tax rate hurts the racetracks when compared with a lower rate) there could be no taxation of the racetracks at all.”34 As the Court rightly recognized, some degree of line drawing—that is, favoring one group, behavior, or activity over another—is necessary to legislate.35

Relatedly, advocates argue that restrictions on economic liberty should be treated as analogous to restrictions on other sorts of individual rights (such as political liberties), which generally receive heightened constitutional scrutiny. All manner of “rights,” the argument goes, are equal; and all should be subject to stringent review. Evan Bernick of the Institute for Justice, for instance, has argued that “the Court must insist that the government may never restrict people’s peaceful exercise of their liberty without an honest, reasoned justification” because there should be “no such thing as a second-class right, any more than a second-class citizen.”36 On this view, there is no articulated limit to the opt-out “rights” that courts should recognize and subject to stringent review.

It is easy to think of examples that draw the analytical limits of this argument into serious question. Do I have a constitutional right against your employment claim because I have a liberty to racially discriminate? A right against your slip and fall suit because I have a liberty to leave puddles of water in my building? A right against a criminal fraud charge because I have a liberty to say (that is, lie about) whatever I want? The problem, which remarkably bears repeating, is that individual liberties—at least if they are treated as trumps against lawmaking and regulation—must not be infinite if we care to live in an organized, let alone just, society.37

The contention that all rights (or in the context of First Amendment arguments, all speech) must be treated the same implicates a deeper problem: the argument assumes both the scope of what constitutes a “right” and the purpose of their stringent judicial review. Even on their own terms, advocates lack accounts of why all “rights” should qualify for stringent review (that is, of the purpose of the doctrinal architecture of the First or Fourteenth Amendments), or for that matter what activities fall within the scope of the “rights” subject to that heightened review. Presumably, few of those advocates would accept positive welfare rights, for instance, as “interests” that deserve heightened constitutional scrutiny—as a civic republican view might. The broad arguments against the regulation of business licensing instead appear to presuppose that the purpose of the right invoked, be it the First or Fourteenth Amendment, is to defend market ordering unencumbered by government regulation. They reflect, in so doing, a certain vision of liberty defined by individual market choice and freedom from government. These views are, however, not the necessary or only understanding of liberty or the purpose of either the First or Fourteenth Amendments. They are also rarely if ever explicitly justified.

Conclusion

The fact of this conversation—of these cases, of this collection—sheds light on deep questions in constitutional discourse today. The ambit of the Constitution’s more stringent review is being pushed to expand more broadly into economic affairs. These shifts raise deep questions about our constitutional system. They challenge us to ask what sorts of activities should be devoted to politics (as protected by lax or no judicial review) versus law (as defended by more stringent scrutiny). They challenge us to consider substantively conflicting notions of liberty and their relationship to constitutional review—including whether liberty is only freedom from regulation, or also freedom of self-government. To date, however, the chief public arguments in favor of more stringent constitutional review of occupational licensing regimes have not addressed themselves to, let alone answered, those questions.

Whether or not business licenses improve health and safety or promote protectionism are important questions for the political branches. But the fact of legislative line drawing or “speech as such” does not make them ones for heightened constitutional review. Without a principled limit on when and how the Constitution can be invoked as a shield against economic regulation, we will embrace a world sharply tilted against democratic governance.

But no matter whether we agree or disagree about the status of business licensing under various constitutional provisions or in differing contexts, these cases highlight the need to reconsider the purpose and scope of what stringently protected constitutional liberties are and should be today. Is the purpose of the First or Fourteenth Amendment market freedom? Democratic self-government? Or other ideals? To answer those questions, it is not enough to look narrowly at the issue of business licensing or to point to line drawing or speech as such. Instead, we must squarely consider competing substantive understandings of constitutional liberty within the context of broader shifts in contemporary legal culture and jurisprudence.

Amanda Shanor is a Ph.D. Candidate in Law at Yale University. She received her J.D. from Yale Law School and her B.A. from Yale College. She is grateful to Molly Brady, Emily Chapuis, Gloria Cheatham, Allegra McLeod, Charles Shanor, and Shelley Welton for their helpful comments. She is indebted to William Eskridge, Jr., Robert Post, Jack Balkin, and David Cole for conversations that led to her thinking here.

Preferred Citation: Amanda Shanor, Business Licensing and Constitutional Liberty,126 Yale L.J. F. 314 (2016), www.yalelawjournal.com/forum/business-licensing-and-constitutional-liberty.