• Adam LeDuc

OPINION: The War On Freedom Of Contract

File photo | Personal Liberty

Perhaps one of the most controversial and widely debated political topics is one that remains largely unknown to the general public. There exists, within our Constitution, a basic human right that sits at the core of all Democracies and is carried in the hearts of all free persons. This right is known as Freedom of Contract.

In short, Freedom of Contract exists for the sole purpose of limiting government’s power in regard to economic regulation by protecting the individual’s right to both liberty and property. This right is defined in the Due Process Clause of the Fourteenth Amendment:

All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws. [emphasis mine]

The Fourteenth Amendment was one of the three Constitutional installments to occur during the Reconstruction era in post-Civil War America. It was enacted to recognize citizenship of former slaves and further ensure they had equal liberties and protections under the law. Congress passed this bill with 94% Republican support and 0% Democrat support.

As we shall see, Freedom of Contract has continuously suffered attack by unjust rulings for almost a century. It has been cited numerous times throughout judicial history, but was most prevalent during the Supreme Court period known as the Lochner era.

The Lochner Era

At the turn of the 19th and 20th centuries, the majority of New York bakeries were operated in the cellars of tenement houses. These locations subjected the workers to extreme health risks along with providing consumers bread that was deemed hazardous. In addition to poor sanitation standards, the average baker also labored 74 hours per week. In an effort to combat this dilemma, the state issued the New York Bakeshop Act of 1895, of which Section 1 stated:

No employee shall be required, permitted or suffered to work in a biscuit, bread or cake bakery or confectionery establishment more than sixty hours in any one week, or more than ten hours in any one day.

The Bakeshop Act would go on to define other guidelines as well, such as sanitation standards, routine plumbing maintenance, and specific materials with which the bakery must be comprised in order to provide a healthier work environment.

Following this event, bakery owner John Lochner was indicted for violation of the Bakeshop Act on the basis that one of his employees had exceeded 60 hours of work in a particular week. He was found guilty but appealed his case before the Supreme Court in 1905 in Lochner v. New York.

Lochner’s attorneys challenged the legality of the Bakeshop Act on the grounds that its existence utilized class legislation because it did not apply to all bakeries, such as those in hotels and restaurants. It was further argued that the primary purpose of the Bakeshop Act was actually to regulate hours. The Court would seemingly agree to this claim, as Justice Rufus Peckham wrote for the majority:

Clean and wholesome bread does not depend on whether the baker works but ten hours a day or only sixty hours per week.

The Supreme Court concluded the Bakeshop Act was in violation of the Constitution—specifically Freedom of Contract. Imposing a regulation on hours, it was determined, would thereby prevent the individual from freely exercising his liberty to agree and negotiate to whichever employment terms he wished. Justice Peckham articulated this by further stating:

The general right to make a contract in relation to his business is part of the liberty of the individual protected by the 14th Amendment of the Federal Constitution...The right to purchase or to sell labor is part of the liberty protected by this amendment...There is no contention that bakers as a class are not equal in intelligence and capacity to men in other trades or manual occupations, or that they are not able to assert their rights and care for themselves without the protecting arm of the state, interfering with their independence of judgment and of action.

This ruling would serve as a homerun for individual liberty and Constitutional rights; however, it failed to resolve the health concerns afflicting the state’s bakeries. The principles defined from this case would be invoked nearly 200 times more to strike down other laws that violated Freedom of Contract. This precedent persisted until the late 1930’s which became known as the Lochner era.

The Wage Freeze and the Rise of Healthcare

Imagine, if you can, a world in which healthcare is paid entirely out of pocket because it is actually affordable, and insurance is unnecessary. In 1900, the annual cost of healthcare was $5, which, when adjusted for present-day, only comes to $100 per year (imagine only losing $2 from your weekly paycheck).

In the late 1920’s an individual from Baylor University Hospital in Dallas had made the observation that, on average, Americans were spending more on cosmetics than healthcare. From this, the hospital began pondering methods to entice the individual to spend a monthly amount at their institution in the same way they spend a monthly amount on cosmetic supplies. The idea they hatched was initially offered exclusively to local school teachers—that if teachers pay 50 cents per month, Baylor will cover the cost of 21 hospital visits per year (This was at a time when the average citizen rarely visited hospitals, so 21 free visits per year seemed a bargain when in reality they were buying a service that was largely unnecessary). The Great Depression began soon after, causing this idea to grow in popularity, at which point it was given an official name: Blue Cross.

The wartime economy that proceeded a decade later caused a tremendous demand for labor due to many men being overseas. Congress, at this point, issued the Stabilization Act of 1942, which granted the president power to authorize a federal wage freeze. President Franklin Roosevelt used this power in attempt to control the rising inflation during this period. Though it may have been authorized under good intentions, such power was perceived controversial as it was a blatant violation of the Constitution—once again, Freedom of Contract.

Keep in mind the Lochner era, which recycled the same precedents for nearly four decades defending Freedom of Contract, coincidentally ended just several years prior at the time of this ruling.

Companies who were in desperate need of labor now had no way to compete with one another for a prospective candidate. Wherein the past, companies may have competed for a candidate by offering higher pay, they were now federally locked in a wage freeze. The State interfering with a company’s practices in regard to work shifts (The Bakeshop Act) was just as unconstitutional as interfering with their practices in regard to pay rate (The Stabilization Act).

But fear not, for liberty always prevails! With employers restrained by this ruling, they attempted to attract candidates by offering to pay for their health insurance. The candidate now sought out companies which would pay the highest for healthcare, and salary was thrown to the wind. In 1940, only 10% of the population had healthcare, by 1953, it had jumped to 63%.

This healthcare loophole however caused an unforeseen and drastic consequence: Blue Cross and other health insurance companies had made the realization that the employer could afford more than the employee, and thus insurance companies began increasing their costs. By the time the effects of the Stabilization Act had expired, it was already the norm for companies to pay healthcare and would be too expensive for one to pay on their own.

Yes, the unconstitutional ruling that prevented Freedom of Contract is what birthed the beast that grew into the present-day healthcare crisis.

Affirmative Action

The Affirmative Action program, beginning in 1961 with President John F. Kennedy’s Executive Order 10925, helped facilitate the necessary Civil Rights era of the same decade. In his order, President Kennedy stated:

It is the plain and positive obligation of the United States Government to promote and ensure equal opportunity for all qualified persons, without regard to race, creed, color, or national origin, employed or seeking employment with the Federal Government and on government contracts...it is the policy of the executive branch of the Government to encourage by positive measures equal opportunity for all qualified persons within the Government.

Certainly, any sensible person can agree it is morally appropriate to enact legislation prohibiting employers from discriminating based on ethnicity, in the same way society can agree to legislation that demands safe and sanitary work environments which allow for the production of healthy food products. The point to be exemplified in this section is that the problem with Affirmative Action programs is not that they prevent discrimination, but rather how they endeavor its prevention.

In 1972, a 32-year-old white man named Allan Bakke applied to medical school at University of California, Davis. He had previously earned a degree in mechanical engineering from University of Minnesota, joined the national mechanical engineering honor society, then joined the U.S. Marine Corps and became captain and served a combat tour in Vietnam, and after that he worked for NASA and went on to earn his master’s degree in mechanical engineering. Needless to say, Bakke was an intelligent and accomplished man.

Despite all of his success however, he had a growing interest in medicine. When he applied to UC Davis in 1972, he was rejected. He applied again the following year and was again rejected. The University was receiving 3,700 applicants of which only 100 would be admitted. Of those 100 admitted to the school, 16 spots were reserved specifically for minority groups. Bakke filed suit against the school and it was brought to the Supreme Court.

In 1978, in Regents of the University of California v. Bakke, he argued the school was discriminating because it was reserving spots specifically for minority groups; what’s more, there was no academic level or GPA requirement minority groups had to satisfy for admission (unlike that of white people). Bakke’s GPA was far above the minimum required by the school, but because the University implemented a race quota, Bakke was being rejected to populate the school with less-qualified candidates. Remember JFK’s speech of “equal opportunity for all qualified persons”. The court agreed that race should not be a factor for admissions, but having a race quota is in violation as you risk discriminating against a more qualified person regardless of their race. This was a victory for Freedom of Contract.

Contrast this 1978 ruling with a similar case that Asian-Americans filed against Harvard in 2018 on the grounds of discrimination. The Dean of Admissions, William Fitzsimmons, outwardly admitted that the university has different SAT requirements for different races (lower requirements for blacks, Hispanics, and Native Americans, but higher requirements for Asians). Additionally, the school has a “personality test” in which Asians consistently receive lower rankings on personality traits compared to their white counterparts. The court however would rule in favor of Harvard by concluding:

It is possible that the self-selected group of Asian Americans that applied to Harvard during the years included in the data set used in this case did not possess the personal qualities that Harvard is looking for at the same rate as white applicants, just as it is possible that the self-selected white applicants tend to have somewhat weaker academic qualifications than Asian American applicants.