Economic Protectionism and Consumer Safety

Examining legal challenges to occupational licensure

A Tennessee law stated that only a licensed funeral director could sell caskets. The courts didn't agree.

An individual’s right to pursue an honest occupation without arbitrary governmental interference has been promoted and protected throughout Anglo-American history. But today that right is being reinterpreted and compromised, largely due to the overuse of protectionist occupational licensing schemes. Occupational licensing is often used as a tool to stifle competition and to limit disfavored groups. Unfortunately, it also has a long history of being abused to perpetuate racial inequality, including attempts to exclude the Chinese from construction jobs on California railroads and African-Americans from skilled trades such as plumbing. Even in the absence of racism, however, a legal construct known as the “rational basis” test makes it very difficult for entrepreneurs to successfully challenge the constitutionality of licensing laws in court.

The first case to deal specifically with occupational licensing was decided at a time when the courts were still carefully restricting new regulatory policies with an eye toward preserving the constitutional right to freely pursue an occupation. Dent v. West Virginia involved the nation’s first physician licensing laws, and the Supreme Court was concerned with protecting the public “against the consequences of ignorance and incapacity, as well as of deception and fraud.” Those restrictions with “no relation to such calling or profession” or licenses that were “unattainable by … reasonable study and application” would violate the Constitution. Since then, however, the argument that licensing laws need not relate to public welfare, but rather may exist for the sole purpose of benefiting one group over another, has gained traction.

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In Craigmiles v. Giles, Pastor Craigmiles became frustrated at the exploitation of his congregation by funeral homes, which benefited from a law prohibiting the sale of caskets by anyone but a licensed funeral director. (The license required intensive training or apprenticeship, the payment of large fees, and passing a state board exam.) He decided to open his own casket business, and, when the state proceeded to enforce the casket sale restriction against him, filed a lawsuit alleging a violation of his rights under the privileges and immunities, due process, and equal protection clauses of the Fourteenth Amendment. Finding no “rational basis” or relationship to the public health (Tennessee did not even require people to be buried in caskets), the 6th U.S. Circuit Court of Appeals decided that the licensure requirement was “designed only for the economic protection of funeral home operators” and struck down the law.

But six days later, a federal district court in Oklahoma reached the opposite conclusion in a nearly identical case, Powers v. Harris, a decision that was upheld by the 10th U.S. Circuit Court of Appeals. Even if the Oklahoma scheme cost citizens their economic freedom, the circuit court opined, “the decision of the legislature must be upheld if ‘any state of facts either known or which could reasonably be assumed affords support for it.’” This deference to the rational basis test meant that the appeals court was not permitted to question the regulation or suggest alternatives. The court even went so far as to declare that “intrastate public protectionism constitutes a legitimate state interest.” Public welfare had been removed from the constitutionality calculus entirely.

The 9th Circuit referenced the Craigmiles/Powers divide when it decided a wildlife-control licensing case called Merrifield v. Lockyer. Faced with a truly bizarre law clearly designed to favor certain market participants over others similarly situated, the court ruled that “we agree with the Sixth Circuit in Craigmiles and reject the Tenth Circuit’s reasoning in Powers v. Harris. … Economic protectionism for its own sake, regardless of its relation to the common good, cannot be said to be in furtherance of a legitimate government interest.” The 5th Circuit unanimously agreed in 2011 when it decided its own casket case, holding that “the great deference due state economic regulation does not demand judicial blindness to the history of a challenged rule or the context of its adoption, nor does it require courts to accept nonsensical explanations for regulation.” This split among circuit courts over the issue of protectionism as a legitimate purpose for occupational licensing sets the stage for the Supreme Court to decide the question in a future case.

The question of the constitutionality of occupational licensing is an old one. While new regulations on entrepreneurs and skilled professionals are almost always billed as measures to protect the health and safety of the public, they are invariably promoted by one lobby or another with a financial gain at stake. Even assuming the best of legislators, special interests continue to muddy the waters in this area. It remains for litigators to defend those consumers and businesspeople in instances where the “protection” does more harm than good.

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