Constitutional Clauses and Business Law

Federalism and the Supremacy Clause

The supremacy clause states that businesses must obey federal and state laws. When the federal and state laws conflict, the federal law is enforced and the state law then becomes void.
The defining characteristic of federalism is that the power of government is shared between the federal government and the state governments. However, in a federal system, there has to be structure that determines which powers of government belong to each level of government. That structure comes from the 10th Amendment to the Constitution, which says the powers not specifically given to the federal government belong to the states. That amendment established two classifications of governmental power in our federal system: enumerated and reserved. An enumerated power is a power specifically granted to each branch of the federal government. A reserved power is a power of government that is not specifically given to the federal government in the Constitution.


Federalism is a system of government in which different levels of government divide and share power.
The states of the United States are not political subdivisions of the United States in the sense that the power of the states is granted by the federal government; rather, the states are separate sovereign entities that have ceded some of their power to the federal government. In short, a political subdivision is a smaller unit of government that receives its power from the federal government. That means, for instance, that the federal government cannot force states to adopt specific laws, administer federal programs, or enforce a federal statute. A statute is a written law passed by a legislative body—in this case, Congress.

Establishing these two classifications of government powers in our federal system left the possibility that both levels of government might claim some powers. In some situations, the exercise of power by one level of government conflicts with the exercise of power by the other level of government. Article 6, paragraph two of the Constitution explains how to resolve these conflicts: "This Constitution, and the laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the Constitution or laws of any State to the contrary notwithstanding."

This is the supremacy clause of the Constitution, which essentially says that in the event of a conflict in the exercise of federal and state powers, the power of the federal government prevails.

This supremacy clause has given rise to a concept called federal preemption, which is a doctrine that states if federal laws and state laws conflict, the federal law takes precedence over the state law.

The supremacy clause can offer a business the opportunity to avoid a state law that the business finds to be improper, if there is a federal law that addresses the same issue or regulation. Of course, even if that challenge is successful, the business will still have to comply with the federal regulations because the supremacy clause dictates that federal law is the supreme law of the United States.