Constitutional Clauses and Business Law

Interstate Commerce Clause

Description of the Interstate Commerce Clause

The interstate commerce clause grants the federal government the power to regulate commerce. Congress has broad powers to regulate all commercial activity that involves more than one state.

Article 1 of the US Constitution lists the powers of Congress. Congress is the legislative branch of the U.S. government, consisting of the Senate and the House of Representatives. Found in Section 8 of Article 1, the commerce clause gives Congress the power "to regulate commerce with foreign nations, and among the several states, and with Indian tribes."

Originally, this clause was applied as it was intended, particularly the"among the several states" part of the clause, which has the most immediate effect on typical businesses. Only the purchase, sale, and transportation of goods, services, money, and people between states, known as interstate commerce, was subject to regulation by Congress.

However, the expansion of the power of Congress to regulate interstate commerce began early. As a result, purchase, sale, or transportation of goods, services, money, and people within a single state, known as intrastate commerce, became subject to regulation by Congress. In 1824, in the case of Gibbons v. Ogden, the United States Supreme Court, the highest court in the United States, examined a federal law—a law passed under the powers given to Congress and signed by the president—that regulated ships taking part in "coastal trade" (in other words, moving between coastal ports of different states), which found that commerce includes navigation of the waterways. The court found that intrastate trade may be regulated if it impacts commerce in other states.

Interstate Commerce and Intrastate Commerce

Interstate commerce is between states; intrastate commerce is within a state. The interstate commerce clause gives the federal government power to regulate interstate commerce. Intrastate commerce comes under the rule of state law, unless a preemptive federal law applies.
After Gibbons v. Ogden, the power of Congress to regulate intrastate commerce impacting interstate commerce continued to expand as a result of additional Supreme Court case law. In 1914, in Houston East and West Railway Company v. United States, the Supreme Court ruled that Congress's power to regulate interstate commerce allowed it to regulate intrastate shipping rates when those rates might affect interstate shipping rates.

In Wickard, Secretary of Agriculture v. Filburn (1942), the Supreme Court decided that the growing of wheat by a farmer as feed for his own cattle affected interstate commerce. The court reasoned that if the farmer did not grow the wheat, he would have to buy the wheat, perhaps in interstate commerce. Therefore, a federal law that limited the amount of wheat that a farmer could grow applied to the farmer feeding his own cattle with his own wheat.

More recently, the Supreme Court decided that the power of Congress to regulate interstate and intrastate commerce has limits. In United States v. Lopez (1994), the court held that a federal law banning possession of guns within 1,000 feet of a school was an invalid exercise of Congress's power to regulate interstate trade. The court reasoned that Congress could not determine that interstate trade was in any way involved with or affected by the location of guns near schools.

Application of the Interstate Commerce Clause to Businesses

The interstate commerce clause means that the federal government can regulate business if it crosses state lines. Therefore, businesses must be mindful not only of state laws, but of federal laws as well.

The interstate commerce clause affects business in the 21st century, and it will continue to affect business in the future. Congress may pass laws related to almost every business activity that either involves interstate commerce or that may be considered to have an effect on interstate commerce.

Some trade activities that are subject to congressional regulation may seem clear. The Federal Trade Commission (FTC), established September 26, 1914, regulates arrangements that are considered to be in restraint of trade, or improperly interfering with commerce. The FTC may also step in if a person or group accuses an organization of false advertising. The Consumer Credit Protection Act of 1968 requires a broad range of businesses to provide specific information to consumers of credit.

Congress has also passed a broad range of federal laws—laws passed under the enumerated powers given to the Congress of the United States and signed by the president—that regulate business activities that may seem local. Federal laws govern employment practices, from a minimum wage to workplace safety. Likewise, many federal laws address environmental standards, such as which substances are allowed to go into rivers and landfills. According to court rulings, all these subjects involve at least the potential to affect interstate commerce, so Congress may regulate these activities under the interstate commerce clause.

Congress also regulates less obvious activities related to interstate commerce. For instance, federal law governs the legitimate collection and sale of e-mail addresses. The operation of a warehouse or a storage facility can also be governed by federal law because the activities could potentially affect interstate commerce.