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The Landmark Case That Destroyed Economic Liberty

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If the Supreme Court’s 1905 holding in Lochner v. New York is the widely reviled embodiment of the constitutional right to freedom of contract, then West Coast Hotel Co. v. Parrish is its celebrated antithesis. The New Deal era case has been identified with the beginning of a “Constitutional Revolution” that freed progressive social policy to march triumphantly onward. But the official, approved story of West Coast Hotel, a case almost uniformly lauded by legal scholars, has it quite wrong. Far from heralding an enlightened era of reform, West Coast Hotel signals a break from traditional liberal values of freedom and individualism, a move in the direction of social engineering and control by political elites.

The facts before the Court were quite simple. The plaintiff, Elsie Parrish, was employed as a maid at a hotel owned and operated by the defendant, West Coast Hotel Company, which compensated Parrish at a rate impermissible under a State of Washington law. The statute established “Minimum Wages for Women” in accordance with the recommendations of an Industrial Welfare Commission (later abolished and reincarnated as the Industrial Welfare Committee). Parrish sued the West Coast Hotel Company, asking for the difference between the wage demanded by the Washington law and the amount that she was paid. The West Coast Hotel Company based its argument on the Fourteenth Amendment’s due process clause, contending that Washington’s law deprived it of a fundamental right, the freedom of contract, without due process of law.

Delivering the opinion of the Court, Chief Justice Charles Evans Hughes wrote that the requirements of constitutional due process were fulfilled where a “regulation … is reasonable in relation to its subject and is adopted in the interests of the community.” The Court held, affirming the Supreme Court of Washington, that the law was a constitutionally permissible exercise of Washington’s police power.

A humble, wage-earning maid earning less than $14 per week, Parrish was, no doubt, a sympathetic plaintiff. Presented with such an apparently harrowing life of thankless drudgery, it is perhaps natural to root for the underdog, to look for intervention of some kind to level the bargaining power of the parties. And minimum-wage laws are in fact a form of redistribution, though not necessarily in the way we might think. In the real world, where economic realities cannot be magically legislated away, the minimum wage redistributes wealth not just away from the employer — indeed, it may not even do this — but from the employees who lose their jobs as a result of the compelled wage hike.

Were economic and natural laws so easily subdued or supplanted, we should have only to announce Utopia by legislative act. It never occurs to lawmakers, of course, to remove existing barriers to market participation and economic advancement, the burdens of which often fall most heavily on less-skilled workers and the poor — barriers such as occupational licensure and other rules that prevent people from using skills and implements they already have to earn a living. Remarking on this, the shortsightedness of “the so-called ‘practical’ politician,” Herbert Spencer wrote, “He contemplates intently the things his act will achieve, but thinks little of the remoter issues of the movement his act sets up, and still less its collateral issues.” Elsewhere, Spencer speaks of the ways in which “uninstructed legislators have … continually increased human suffering in their endeavours to mitigate it.”

It is probably true that several kinds of intervention, barring, in Lysander Spooner’s words, “commerce that is intrinsically just and lawful,” tend to consolidate economic power in large, hierarchical firms. Even if true, though, that is not an argument in favor of minimum-wage laws, but against all economic intervention. As Justice George Sutherland noted in his dissenting opinion in West Coast Hotel, even if an employer pays a wage that is not adequate to provide the employee with all that she needs, the employer has nevertheless “neither caused nor contributed to her poverty.”

Justice Sutherland’s dissent in West Coast Hotel remains relevant to contemporary constitutional debates. As law professor David Bernstein observes in his study of the regrettably tarnished freedom of contract case, Lochner v. New York, we find hints of today’s “new originalism” in that dissent. Sutherland contended that the Constitution’s words meant in his day just what they meant when the document was adopted as the supreme law of the land, that “freedom of contract was the general rule, and restraint the exception.”

Maintaining that the 1923 case Adkins v. Children’s Hospital was correctly decided, Sutherland argued that “while there was no such thing as absolute freedom of contract,” the law at issue constituted an unconstitutional limitation on that freedom and “create[d] an arbitrary discrimination” in its different treatment of men and women. If men and women were truly equal legally and politically, Sutherland argued, then the law could not rightly place them in different classes. Women, no less than men, were able “to make a fair bargain” for themselves, without the intervention of the state. In Adkins v. Children’s Hospital, for which Sutherland had authored the majority opinion, the Court considered and struck down a law very much like the one at issue in West Coast Hotel, requiring “the fixing of minimum wages for women and children in the District of Columbia.”

At first, it seems striking that in a span of less than fifteen years, Sutherland’s view — on essentially analogous facts — went from embodying the opinion of the Court to representing the dissenters. But the West Coast Hotel decision was a close one, dividing the Court 5 to 4. Justice Owen Roberts’s famed vote in the case has come to be known as the “switch in time that saved nine,” a reference to the fact that Roberts’s apparent shift came shortly after Franklin Roosevelt introduced a plan that would allow him to install an additional Supreme Court justice for each one over 70 years of age, his infamous “court-packing” scheme. And while scholars have questioned whether there was in fact any connection between Roberts’s vote and Roosevelt’s court-packing plan (the vote was taken before Roosevelt’s announcement), the case nonetheless begins a period of reorientation in constitutional jurisprudence. Prior to West Coast Hotel, in succeeding cases testing New Deal policies, Roberts frequently joined the conservatives (really anti-progressive classical liberals), the “Four Horsemen,” in invalidating those policies. From West Coast Hotel on, when confronted with cases implicating economic liberties, the Court has been extreme in its deference to government action, effectively devastating the fundamental individual rights that make a true free market possible.

Substantive due process

It is perhaps surprising that we find the debate about substantive due process at its most contentious within the group of jurists and legal scholars who identify as originalists, whose preferred method of constitutional interpretation is to (attempt to) heed the original public meaning of its words. Libertarian originalists, often called “new originalists,” argue that the concept of substantive due process is well within the original public meaning of the text and thus that the Constitution demands robust protection for the liberty interests of individuals. Indeed, they argue further that the distinction between substantive and procedural aspects of constitutional due process is itself spurious and incoherent.

Explaining this view, the Pacific Legal Foundation’s Timothy Sandefur writes that the law cannot be mere “arbitrary command,” that it must embrace normative aspects of justice, that is, it must take on a certain view of morality. For originalists such as Sandefur and (to name another notable example) Georgetown law professor Randy Barnett, there can be no clear separation between the procedural requirements of constitutional due process and the substance — “certain standards of fairness” — that shapes the procedure. Sandefur asks, for example, if we would regard “a coin toss, or a consultation of the zodiac, or the drawing of lots” as a fair trial. Certainly we would not and thus, Sandefur argues, attempts to define a proper judicatory process must fail without the incorporation of substantive ideas on individual rights.

Their projects apparently identical — to give force to the original public meaning of the words — how can originalists disagree so fundamentally about such an important question? What these disagreements show, perhaps, is that even those jurists who, like Justice Antonin Scalia, sincerely believe that they are not interpreting at all will and in fact must bring many of their own prior philosophical ideas into their work.

The intra-originalist debate on substantive due process further demonstrates the important fact that jurisprudential divides often don’t align with political or partisan attachments. Conservative jurists have frequently offered some of the strongest repudiations of substantive-due-process protections for the important economic liberties that libertarians defend. Justice Scalia, for instance, has repeatedly asserted that the notion of substantive due process is “a contradiction in terms.” The Constitution protects a particular procedural process and that alone. For Scalia, then, the Constitution makes Congress the “900-pound gorilla in Washington,” questions about rights and liberties being reserved in our system for the political process, for the votes of our elected officials. He is steadfast in his insistence that if citizens want a law to protect (or proscribe, as the case may be) a particular liberty interest, then they ought to persuade their fellow citizens. Libertarians, of course, disagree, seeing the rights of the individual as absolute, not subject to the vagaries of the political process, not something that can simply be voted away.

As it happens, some libertarians (the author is one of them) suspect that originalists of the Scalia variety are probably right that the Constitution grants the legislative branch almost boundless power to violate our rights. Notwithstanding the dictates of America’s constitutional system, however, individual rights preexist all political systems and are the fundamental, natural law that binds those systems. In short, one need not accept the historical and philosophical claims of new originalism to decry results such as the one in West Coast Hotel. The Constitution is a product of its time and place; to the extent that it conflicts with the libertarian law of equal liberty, we are no more bound by its dead hand than we are bound by laws today that define what we may ingest or say.

Our freedom of contract is no different. When the state supplies additional or different terms and makes those terms mandatory, punishing those who don’t comply, we no longer have the full freedom of contract — an important right without which there can be no economic liberty. Wage-fixing is ultimately just a discrete example of price-fixing, which proves disastrous and counterproductive to its own stated goals wherever we find it. West Coast Hotel should be condemned as an example of illiberal, paternalistic socio-economic intervention, not praised as a fair and reasonable limitation on the employment contract. As principled liberty-lovers, though, we should also emphasize the ways in which the state hobbles working Americans through expensive licensure rules and other economic regulations. If we are ever to see a genuine free market in the United States, cases such as West Coast Hotel must be revisited, reconsidered in the light of the law of equal liberty.

This article was originally published in the March 2016 edition of Future of Freedom.

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    David S. D'Amato is a policy advisor at the Future of Freedom Foundation, an attorney, and an adjunct law professor. He is also a regular contributor at the Cato Institute's Libertarianism.org and a policy advisor at the Heartland Institute. His writing has been featured at public policy organizations such as the Institute for Economic Affairs, the Centre for Policy Studies, and the Foundation for Economic Education, and in popular media such as Forbes, Investor's Business Daily, Newsweek, and RealClearPolicy.