262 U.S. 522 (1923), argued 27 Apr. 1923, decided 11 June 1923 by vote of 9 to 0; Taft for the Court. Kansas startled the nation in 1920 by enacting the Industrial Relations Act, which provided for the compulsory arbitration of all disputes in key industries—food, clothing, fuel—through a specially appointed court. This court had the right to restrict strikes and employer lockouts, and also had the power to fix wages and oversee working conditions. The measure proved to be unpopular with both management and labor.
Ruling the law unconstitutional, Chief Justice William Howard Taft used the occasion to formulate definitive guidelines for freedom of contract and to settle precisely which businesses could be regulated on the basis of being “affected with a public interest.” These included businesses carried on under the authority of a public grant (i.e., public utilities that rendered public services; occupations traditionally recognized as vested with a public service dimension, such as inns, cabs, grist mills; and businesses where natural economic laws did not operate, such as monopolies or businesses whose operations had changed toward public service so as to warrant some governmental regulation.
The ruling negated a half-century of legal development since Munn v. Illinois (1877) by putting the majority of businesses outside the reach of state regulation. Economic freedom became the rule, and restraint the exception. Affording the legal rationale for even more vigorous assaults upon statutes directly regulating business behavior, the case led to the voiding of a series of state measures enacted to impose social controls upon a variety of private businesses.
Paul L. Murphy