Fundamentals of US Law_Fernholz_0710
I.
Introduction
The case deals with the question of the constitutionality of a federal statute trying to promote training of
employees in areas related to Science, Technology, Engineering and Mathematics (STEM). The issue is,
whether Congress had the power to pass the Science-Ready Workforce Act (SRWA) and whether the
Department of Labor’s regulations interpreting of some provisions in the SRWA should be enforced by
the Courts.
II.
Rules
A federal statute is constitutional if it has a legitimate purpose, if it falls within the scope of the
Constitution and its means are proportionate and not prohibited by law. (McMulloch – Test). A
statute falls within the scope of the Constitution, if Congress can rely on one of its enumerated
(limited) powers in Art. I § 8 of the Constitution to enact the statute. Congress has the power to
enact all laws that are necessary and proper for the realization of one of its enumerated powers
(Necessary and Proper Clause, Art. I §8 Cl. 18 U.S. Const.). If Congress cannot rely on an
enumerated power, the statute is unconstitutional, as it violates the principle of sovereignty of the
states, which, according to the Dual Sovereignty Doctrine, possess the general governing power (see
also 10th amendment).
Executive Regulations will be enforced if, in cases where Congress has implicitly empowered the
Exectuive to pass those regulations, the regulations are not capricious, arbitrary or manifestly
contrary to the statute (Chevron). In such cases, the Courts give a high level of deference to the
Executive. In matters where Congress has been silent on a particular question, the regulations will be
enforced if they are reasonable (Chevron).
III.
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Application
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1. Reasons for constitutionality:
a) Congress had the power to enact the statute under the Commerce Clause
The statute is constitutional because Congress had the power to enact it under the commerce clause,
Art. I §8 Cl. 3 U.S. Const. The commerce clause allows Congress to regulate interstate commerce. Initially,
this power has been interpreted very widely by the Supreme Court (first interpretation: Gibson v. Ogden
and most liberal interpretation in Wickard v. Filburn).
However, in Lopez and Morrison the S.C. limited Congress power to regulate 3 situations:
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Channels of interstate commerce
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Instrumentalities of interstate commerce and
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Activities that have a substantial effect on interstate commerce.
(1) The SRWA does not regulate channels of interstate commerce such as roads, railways, etc.
(2) But one could argue that it regulates instrumentalities of interstate commerce as it relates to
the education of workers who can in theory cross state borders, firstly when it comes to
participating in the STEM trainings. Secondly when – in case where not training is offered – when
applying for a scholarship (Section D. of the SRWA) and receiving the training at a public or
private university. The shortage of high skilled workers is assumingly not equally distributed over
the territory of the U.S.. Rather it seems likely that the demand for workforce in the STEM area is
concentrated in certain regions of the US such as silicon valley. Choosing a career in those areas
implies therefore the mobility of workers throughout the US.
Also, the training programs themselves are instrumentalities of commerce, as they can be
offered across state borders or even online and most likely, there is a national market for such
trainings.
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(3) Even if one would assume that the statute does not regulate an instrumentality, in any case, the
SRWA regulates an activity that has a substantial effect on interstate commerce.
The statute can be based on the substantial effects doctrine according to Lopez/Morrison, if:
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It regulates an economic activity
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The statute contains a jurisdictional hook
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There are Congressional findings that show an effect on interstate commerce
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There is a link between the regulated economic activity and interstate commerce
(i)
The training and education of workers is undoubtedly an economic activity, e.g. services in
exchange for money., Also, the companies that employ workers are engaged in economic
activities. By obliging those companies to offer training facilities the statute is forcing them
to redistribute their funds and assets in order to offer trainings or to pay for trainers to come
and offer them which has an effect on their market performance, revenue and as a
consequence on their economic activity as it limits their freedom to engage in their business
in the way they used to. Therefore the statute regulates an economic activity.
(ii)
The statute itself does not contain a jurisdictional hook meaning that its text differentiates
for its application between inter- and intrastate activities. It rather applies to national and
regional companies at the same time. But, by leaving the definition of national and regional
companies open or rather allowing the Dept. of Labor to define those terms (and that
definition is open to scrutiny by the Courts), the statute contains a jurisdictional element,
which makes it more likely for Courts to find it constitutional.
(iii)
There are sufficient congressional findings that show the effect on interstate commerce. The
lack of skilled workforce hurts the US economy (Findin 1). The US will be short three million
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workers by 2018, and these shortcomings in STEM workers will force a hold on innovation
(Finding 3). These shortcomings will become even more severe with an additional growth of
the STEM sector by 17% (Finding 4). Also, STEM workers command higher wages which
means that an inceased number of STEM workers increases also the average amount of
money a household can spend on the market. Higher incomes have undoubtedly an effect on
the domestic (interstate) market.
(iv)
There is also a direct link between the regulated activity and interstate commerce. The
qualification of workers
Even if one applied the Raich-test to determine whether the statute is constitutional, it would pass the
test. The Raich-test, which basically incorporates the Souter dissent in the Morrison case, states that
Congress can pass a statute based on the substantial effects doctrine, if there are congressional findings
that support the assumption that the regulated economic activity has a substantial effect on interstate
commerce (even if only when aggregated, Wickard v. Filburn)) and Congress acted rationally in
concluding this. It is not for the Court to decide whether the facts are accurate but rather only whether
Congress could conclude the economic effect from the findings.
If Congress has an enumerated power under the Constitution, Art. I §8 Cl. 18, the Necessary and Proper
Clause allows Congress to enact all laws that are necessary to make their policies under the respective
constitutional provisions work.
b) Congress had the power to enact the statute under the Tax and Spend Power
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Congress also had the power to enact the SWRA under the tax and spend clause, Art. I, §8 Cl. 1 U.S.
Const.. The tax and spend power allows congress to raise taxes. Taxes are payments to support the
functioning of the government. Unlike penalties, they are not imposed for unlawful conduct but apply
to everyone. Under the tax and spend power Congress can also tax things that it could not otherwise
regulate. When assessing whether something is a tax, the main characteristics of the payment have to
be determined and substance counts more than the name Congress decides to label the payment with.
The SRWA imposes a tax on all companies that do not comply with Sections A and B of the act and do not
establish ongoing training for their workers. The payment is therefore not imposed for an unlawful
conduct but applies to everyone who remains inactive and does not establish the training programs.
Furthermore, the funds generated by the tax will be used to establish a fund administered by the
government thus the tax is imposed in order to support the government.
The fact that Congress imposes the payment for inactivity is not a problem under the tax and spend
power. Congress can also tax inactivity. While the Commerce Clause does not allow Congress to regulate
inactivity and to force someone to participate in a market (Sebelius), the powers under the Tax and
Spend clause broader and Congress can also impose a tax on inactivity. The reason for that is, that the
tax and spend power gives Congress only limited options for regulating. Congress can only decide that
the people have to pay a tax. Under the commerce clause on the other hand, Congress could regulate a
much broader scope of activities and is therefore more limited in the application of the commerce
clause.. Therefore, the fact that Congress is raising a tax on inactivity does not speak against the
constitutionality.
The SRWA is constitutional because the SRWA imposes a tax and so Congress can enact it under the tax
and spend power.
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c) The Department of Labor’s definition of regional and governmental is constitutional
The Dept. of Labors interpretation of “regional and national companies” should be enforced by the
Courts because it is not unreasonable.
Congress has the power to delegate its rulemaking power the Executive. The scrutiny of judicial review
when assessing the constitutionality or legality of such executive rulemaking depends largely on the level
of deference Congress grants the Executive. In cases where Congress does not explicitly regulate a
subject and does not explicitly empower the Executive to pass a regulation, the Courts will find the
regulation only unconstitutional if it is unreasonable (Chevron).
This is the case here. Congress has not expressly empowered the Dept. of Labour to define national and
regional companies. Therefore Courts can determine whether the DoLs interpretation was reasonable. I
would argue that that is the case. The DoL limits the application of the SRWA to companies that have at
least 500 employees, thus to companies who one can expect to have the necessary administrative and
organizational means to establish a training program so that it will not put a too big burden on them.
d) The Dept. of Labor’s schedule of taxes is constitutional
Congress explicitly empowered the DoL to pass regulations on that matter. Therefore, the Court will only
not enforce them if the regulations are capricious, arbitrary or manifestly against the statute (Chevron).
This is not the case here. The DoL remained within the frame of what Conress allowed it to do. It has
established a cap, that has to be reasonable only according to the DoL. It has established an increase in
the tax as foreseen by Congress in the SRWA and the increase of USD 100 per year does not seem
completely arbitratry or against the statute either.
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2. Reasons for unconstitutionality
a) Commerce Clause
The SRWA is unconstitutional because Congress has no power under the Commerce Clause to enact it.
The statute does not cover channels of interstate commerce. It also does not cover instrumentalities of
interstate commerce. In order to so, it would have to directly refer to the instrumentality, in that case
the people that cross the state borders. But the state only contains provision regarding training of
workers that pose an obligation on a company, thus it does not affect instrumentalities of interstate
commerce.
The regulated activity also does not have a substantial effect on interstate commerce. Firstly, the
regulated conduct does not relate to an economic activity. Rather, it obliges companies to only offer
internal trainings that have no effect for the companies’ business activities. Also, the statute contains no
jurisdictional hook. Rather it applies equally to interstate and intrastate relations and does not
distinguish between the two. Also the interpretation in the regulation by the Department of Labor does
not contain a distinction between the two. While there are congressional findings, those alone are not
enough to prove a substantial effect (see Morrison). Furthermore, the SRWA forces companies to
participate in a market (training market) that they are not already participating in. The. S.C. has found
that it is not possible under the commerce clause for Congress to do so (Sebelius). And even if one
followed the dissent of Justice Ginsburg in Sebelius, one would have to find the statute unconstitutional
Unlike the health care market, it is not unavoidable for everyone to participate in the STEM training
market.
Furthermore, education is a subject traditionally left to the states, which is another argument against
Conress’ power to enact the statute under the Commerce Clause (Morrison).
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Also, one could argue like Justice Thomas in his dissent in Morrison and Lopez where he says that the
substantive effects doctrine does not give Congress any power at all. Historically commerce meant only
trade. With this line of argument Congress could regulate everything, thus the commerce clause cannot
go that far.
b) Tax and spend
One could argue that the payment in question is not a tax but a penalty and Congress can therefore not
rely on the tax and spend power. Firstly because the payment is obviously not there to support the
government but the received funds are rather only administered by the government and directly used to
support the employees. They do not become part of the federal budget and are spent on typical
government spending. Rather they go directly back to the employees. The payment does therefore not
show the same characteristics as a tax. The fact that Congress called it a tax does not make any
difference, as the label of the payment does not matter. It is not clear from the facts how the payment is
administered but this would be another argument against a tax – if the payment is not administered in
the same way as a tax would be.
Furthermore, one could argue that Congress cannot tax inactivity. All enumerated powers have to be
treated in the same way and the commerce clause does not allow the regulation of inactivity, thus the
same should count for the tax and spend power.
c) Definition of regional and national company unreasonable
One could argue that the definition of regional companies is unreasonable. It does not make any sense
to apply the statute only to companies that have at least 2 branches. With this provision, a medium sized
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business like the one of SCV would fall under the statute but a huge California-only based corporation
like Google would not fall under the statute. This goes against the principle of equal treatment and puts
an disproportionate burden on small companies like SCV. It is therefore unreasonable.
d) Tax schedule arbitrary and capriscious
The tax schedule should not be enforced because it is excessively high and therefore against the clear
intent of the statute. A payment of up to USD 1000 per employee is more than 3 times the amount that
the statute establishes (USD 300 per employee) and this overproportionate raise of the tax is in no
relation to the general principle of neutrality that applies to all takes.
3. Best Arguments
I am more convinced by the arguments for constitutionality. I think that the statute falls under the tax
and spend power and is therefore in any case constitutional. I also think that it is constitutional under
the Commerce Clause, firstly because it would be under the Raich test alone (which is the test that I find
more convincing). Secondly, because even under the Lopez/Morrison test it would be constitutional as I
am more convinced by the arguments raised under 1.). There are sufficient congressional findings, I am
convinced that the SRWA regulates an economic activity and there is a direct link between economic
activity and the statute. Also, I believe that while it is true that education might be a traditional matter of
state power, the subject of the statutes falls more into an economic category than an educational one
which is why I believe it should be the power of the Congress to regulate that activity.
IV.
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Conclusion
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I conclusion I believe that a court will likely find the statute constitutional, both under the Commerce
Clause and the Tax and Spend power. I also believe that a Court will most likely enforce the regulations
passed by the DoL.
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