I wonder how many Americans realize that the U.S. Supreme Court once declared the minimum wage to be in violation of U.S. Constitution. This occurred in 1923 in a case entitled Adkins v. Children’s Hospital.
In a 5-3 decision in that case, the Supreme Court held that a minimum wage law enacted by the District of Columbia violated the due process clause of the Fifth Amendment.
D.C.’s minimum-wage law applied only to women and children. The law said that both women and children, by virtue of their supposedly weaker position in society, needed governmental assistance to ensure that they were paid what today would be referred to as a “living wage.”
The law established a governmental board to study the situation and to determine what the minimum wage should be for women in different occupations. Once the board made its wage determinations for each occupation, employers were required to comply, on pain of a misdemeanor criminal conviction on failing to do so.
The case involved two plaintiffs who sought injunctive relief against the enforcement of the board’s minimum wage edicts. One plaintiff was Children’s Hospital, which employed a large number of women. The other plaintiff was a 21-year-old woman who was employed by the Congress Hall Hotel Company as an elevator operator. She was very happy with the terms of her employment. The reason she was suing was that the mandated increase in her salary was causing her employer to lay her off.
The Fifth Amendment prohibits the federal government from depriving any person of liberty without due process of law. As the Court pointed out, the term “liberty” necessarily encompasses “liberty of contract” — that is, the right of people to voluntarily enter into mutual beneficial agreements with each other, including labor agreements.
In fact, a basic principle of economic exchanges is that whenever two parties enter into an exchange, they both benefit from their own individual, subjective perspectives. That’s because by entering into the agreement, they are both giving up something they value less for something they value more.
The Court rejected the notion that women, as a class, need the assistance of government in wage negotiations. It also rejected the notion that there was a correlation between higher wages and higher morals for women, which was one of the justifications for enacting the law. Moreover, the Court pointed out that each person’s situation is different, making it impossible for a governmental board to make a wage determination that is going to be beneficial for every woman.
The Court stated:
The statute now under consideration is attacked upon the ground that it authorizes an unconstitutional interference with the freedom of contract included within the guaranties of the due process clause of the Fifth Amendment. That the right to contract about one’s affairs is a part of the liberty of the individual protected by this clause, is settled by the decisions of this Court and is no longer open to question…. Within this liberty are contracts of employment of labor. In making such contracts, generally speaking, the parties have an equal right to obtain from each other the best terms they can as the result of private bargaining.
The Court also quoted its opinion in Adair v. United States:
The right of a person to sell his labor upon such terms as he deems proper is, in its essence, the same as the right of the purchaser of labor to prescribe the conditions upon which he will accept such labor from the person offering to sell…. In all such particulars, the employer and employee have equality of right, and any legislation that disturbs that equality is an arbitrary interference with the liberty of contract which no government can legally justify in a free land.”
And Coppage v. Kansas:
Included in the right of personal liberty and the right of private property — partaking of the nature of each — is the right to make contracts for the acquisition of property. Chief among such contracts is that of personal employment, by which labor and other services are exchanged for money or other forms of property. If this right be struck down or arbitrarily interfered with, there is a substantial impairment of liberty in the long-established constitutional sense. The right is as essential to the laborer as to the capitalist, to the poor as to the rich; for the vast majority of persons have no other honest way to begin to acquire property, save by working for money.
So, how is it that today America is saddled with a federal minimum-wage law that has destroyed the liberty of contract of the American people?
In the 1930s, President Franklin Roosevelt was outraged that the Supreme Court was declaring some of his socialist and fascist New Deal programs unconstitutional. To circumvent the Court, FDR came up with a scheme that would enable him to pack the Court with his cronies. Although the scheme failed, the Court shifted directions anyway. In the 1937 case of West Coast Hotel v. Parrish, the Supreme Court overruled its decision in Adkins and effectively held that liberty of contract would never be protected again. It was a classic example of how the Court began adjusting and shifting its positions in accordance with how the political winds were blowing, just like the legislative branch of the federal government.