1. Legislative authority to abridge freedom of contract can be
justified only by exceptional circumstances, and the restraint must
not be arbitrary or unreasonable. P.
262 U. S.
533.
2. Businesses said to be clothed with a public interest
justifying some public regulation may be divided into three
classes:
(a) Those which are carried on under authority of a public grant
of privileges expressly or impliedly imposing the affirmative duty
of rendering public service demanded by any member of the public --
e.g., the business of a common carrier or a public
utility.
(b) Certain occupations, regarded as exceptional, the public
interest attaching to which, recognized from earliest times, has
survived the period of arbitrary regulation of all trades and
callings by Parliament or Colonial legislatures --
e.g.,
inns, cabs, and grist mills.
(c) Other businesses which have come to have such a peculiar
relation to the public that government regulation has been
superimposed upon them -- where the owner, by devoting his business
to the public use, in effect grants the public an interest in that
use and subjects himself to regulation to the extent of such
interest. P.
262 U. S.
535.
Page 262 U. S. 523
3. A declaration by a legislature that a business has become
affected by a public interest is not conclusive of the question
whether attempted regulation on that ground is justified. P.
262 U.S. 536.
4. In the present day, one does not devote one's property or
business to public use, or clothe it with a public interest, merely
by making commodities for, and selling them to, the public in the
common callings. P.
262 U. S.
537.
5. The option to deal or abstain from dealing usually
distinguishes private from
quasi-public occupations. P.
262 U. S.
537.
6. Whether the public has become so peculiarly dependent on a
particular business that the owner, by engaging therein, subjects
himself to intimate public regulation must be determined upon the
facts of each case. P.
262 U.S.
538.
7. The extent to which a business which has become "clothed with
a public interest" may be regulated depends upon the nature of the
business, its relation to the public and the abuses reasonably to
be feared. P.
262 U. S.
539.
8. Assuming that the business of manufacturing and preparing
food for human consumption may be put in the third class of
quasi-public businesses noted above, par.2(c), the
Industrial Relations Act of Kansas, in seeking, as a measure for
protection of public peace, health and general welfare, to enforce
continuity and efficiency of the business by compelling employer
and employees to submit controversies over wages to state
arbitration, and in requiring the employer to pay the wages so
fixed (even if confiscatory), and in forbidding the employee to
join in strikes against them -- exceeds the limit of permissible
regulation and deprives the employer of property, and both employer
and employee of liberty, without due process of law in violation of
the Fourteenth Amendment. P.
262 U. S.
540.
9. Public regulation can secure continuity in a business against
owner and employee only when the obligation of continued service is
direct and is assumed when the business is entered upon. Pp.
262 U. S. 541,
262 U. S.
543.
10. Where the theory and purpose of a statute depend upon
compulsion of both employer and employee, its effect upon the
employee may be considered when its constitutionality is attacked
by an employer. P.
262 U. S.
541.
11. The compulsory arbitration attempted under the Kansas
statute in this case was not justifiable on the ground of temporary
emergency. P.
262 U. S. 542.
Wilson v. New, 243 U. S. 332,
distinguished.
111 Kans. 501 reversed.
Page 262 U. S. 524
This case involves the validity of the Court of Industrial
Relations Act of Kansas. Chapter 29, Special Session, Laws of 1920.
The act declares the following to be affected with a public
interest: first, manufacture and preparation of food for human
consumption; second, manufacture of clothing for human wear; third,
production of any substance in common use for fuel; fourth,
transportation of the foregoing; fifth, public utilities and common
carriers. The act vests an industrial court of three judges with
power, upon its own initiative or on complaint, to summon the
parties and hear any dispute over wages or other terms of
employment in any such industry, and if it shall find the peace and
health of the public imperiled by such controversy, it is required
to make findings and fix the wages and other terms for the future
conduct of the industry. After 60 days, either party may ask for a
readjustment, and then the order is to continue in effect for such
reasonable time as the court shall fix, or until changed by
agreement of the parties. The supreme court of the state may review
such orders, and, in case of disobedience to an order, that court
may be appealed to for enforcement.
The Charles Wolff Packing Company, the plaintiff in error, is a
corporation of Kansas engaged in slaughtering hogs and cattle and
preparing the meat for sale and shipment. It has $600,000 capital
stock and total annual sales of $7,000,000 . More than half its
products are sold beyond the state. It has 300 employees. There are
many other packing houses in Kansas of greater capacity. This is
considered a small one.
In January, 1921, the president and secretary of the Meat
Cutters' Union filed a complaint with the Industrial Court against
the Packing Company respecting the wages its employees were
receiving. The company appeared and answered, and a hearing was
had. The court made findings, including one of an emergency, and an
order as
Page 262 U. S. 525
to wages, increasing them over the figures to which the company
had recently reduced them. The company refused to comply with the
order, and the Industrial Court then instituted mandamus
proceedings in the supreme court to compel compliance. That court
appointed a commissioner to consider the record, to take additional
evidence, and report his conclusions. He found that the company had
lost $100,000 the previous year, and that there was no sufficient
evidence of an emergency or danger to the public from the
controversy to justify action by the Industrial Court. The supreme
court overruled his report, and held that the evidence showed a
sufficient emergency.
The prescribed schedule of wages and the limitation of hours and
the rate of pay required for overtime resulted in an increase in
wages of more than $400 a week.
It appeared from the evidence that the company and plant were
under the control of, and in business association with, what were
called "The Allied Packers," who have plants in various cities and
compete with the so-called Big Five Packers, the largest in the
country; that the products of the Wolff Packing Company are sold in
active competition with such products made by other concerns
throughout the United States. It appeared further that, about the
time of this controversy, a strike was threatened in the packing
houses of the Big Five, which the President of the United States
used his good offices to settle. The chief executive of the Wolff
Company testified that there had been no difficulty in securing all
the labor it desired at the reduced rates offered. The Industrial
Court conceded that the Wolff Company could not operate on the
schedule fixed without a loss, but relied on the statement by its
president that he hoped for more prosperous times.
The packing company brings this case here on the ground that the
validity of the Industrial Court Act was
Page 262 U. S. 526
upheld although challenged as in conflict with the provision of
the Fourteenth Amendment that no state shall deprive any person of
liberty or property without due process of law.
Page 262 U. S. 533
Mr. CHIEF JUSTICE TAFT, after stating the case as above,
delivered the opinion of the Court.
The necessary postulate of the Industrial Court Act is that the
state, representing the people, is so much interested in their
peace, health, and comfort that it may compel those engaged in the
manufacture of food and clothing, and the production of fuel,
whether owners or
Page 262 U. S. 534
workers, to continue in their business and employment on terms
fixed by an agency of the state if they cannot agree. Under the
construction adopted by the state supreme court, the act gives the
Industrial Court authority to permit the owner or employer to go
out of the business if he shows that he can only continue on the
terms fixed at such heavy loss that collapse will follow, but this
privilege under the circumstances is generally illusory.
Block
v. Hirsh, 256 U. S. 135,
256 U. S. 157.
A laborer dissatisfied with his wages is permitted to quit, but he
may not agree with his fellows to quit or combine with others to
induce them to quit.
These qualifications do not change the essence of the act. It
curtails the right of the employer, on the one hand, and of the
employee, on the other, to contract about his affairs. This is part
of the liberty of the individual protected by the guaranty of the
due process clause of the Fourteenth Amendment.
Meyer v.
Nebraska, ante, 262 U. S. 390.
While there is no such thing as absolute freedom of contract, and
it is subject to a variety of restraints, they must not be
arbitrary or unreasonable. Freedom is the general rule, and
restraint the exception. The legislative authority to abridge can
be justified only by exceptional circumstances.
Adkins v.
Children's Hospital, 261 U. S. 525.
It is argued for the state that such exceptional circumstances
exist in the present case and that the act is neither arbitrary nor
unreasonable. Counsel maintain:
First. The act declares that the preparation of human food is
affected by a public interest, and the power of the legislature so
to declare and then to regulate the business is established in
Munn v. Illinois, 94 U. S. 113,
Budd v. New York, 143 U. S. 517,
Brass v. Stoeser, 153 U. S. 391,
Noble State Bank v. Haskell, 219 U.
S. 104,
German Alliance Insurance Co. v. Lewis,
233 U. S. 389, and
Block v. Hirsh, 256 U. S. 135.
Page 262 U. S. 535
Second. The power to regulate a business affected with
a public interest extends to fixing wages and terms of employment
to secure continuity of operation.
Wilson v. New,
243 U. S. 332,
243 U. S.
352-353.
Businesses said to be clothed with a public interest justifying
some public regulation may be divided into three classes:
(1) Those which are carried on under the authority of a public
grant of privileges which either expressly or impliedly imposes the
affirmative duty of rendering a public service demanded by any
member of the public. Such are the railroads, other common carriers
and public utilities.
(2) Certain occupations, regarded as exceptional, the public
interest attaching to which, recognized from earliest times, has
survived the period of arbitrary laws by Parliament or colonial
legislatures for regulating all trades and callings. Such are those
of the keepers of inns, cabs, and gristmills.
State v.
Edwards, 86 Me. 102;
Terminal Taxicab Co. v. District of
Columbia, 241 U. S. 252,
241 U. S.
254.
(3) Businesses which, though not public at their inception, may
be fairly said to have risen to be such and have become subject in
consequence to some government regulation. They have come to hold
such a peculiar relation to the public that this is superimposed
upon them. In the language of the cases, the owner, by devoting his
business to the public use, in effect grants the public an interest
in that use and subjects himself to public regulation to the extent
of that interest although the property continues to belong to its
private owner and to be entitled to protection accordingly.
Munn v. Illinois, 94 U. S. 113;
Spring Valley Water Works v. Schottler, 110 U.
S. 347;
Budd v. New York, 117 N.Y. 1, 27;
143 U. S. 143 U.S.
517;
Brass v. Stoeser, 153 U. S. 391;
Noble State Bank v. Haskell, 219 U.
S. 104;
German Alliance Insurance
Co.
Page 262 U. S. 536
v. Lewis, 233 U. S. 389;
VanDyke v. Geary, 244 U. S. 39,
244 U. S. 47;
Block v. Hirsh, 256 U. S. 135.
It is manifest from an examination of the cases cited under the
third head that the mere declaration by a legislature that a
business is affected with a public interest is not conclusive of
the question whether its attempted regulation on that ground is
justified. The circumstances of its alleged change from the status
of a private business and its freedom from regulation into one in
which the public have come to have an interest are always a subject
of judicial inquiry.
In a sense, the public is concerned about all lawful business
because it contributes to the prosperity and wellbeing of the
people. The public may suffer from high prices or strikes in many
trades, but the expression "clothed with a public interest," as
applied to a business, means more than that the public welfare is
affected by continuity or by the price at which a commodity is sold
or a service rendered. The circumstances which clothe a particular
kind of business with a public interest, in the sense of
Munn
v. Illinois and the other cases, must be such as to create a
peculiarly close relation between the public and those engaged in
it, and raise implications of an affirmative obligation on their
part to be reasonable in dealing with the public.
It is urged upon us that the declaration of the legislature that
the business of food preparation is affected with a public interest
and devoted to a public use should be most persuasive with the
court, and that nothing but the clearest reason to the contrary
will prevail with the Court to hold otherwise. To this point,
counsel for the state cite
Clark v. Nash, 198 U.
S. 361;
Strickley v. Highland Boy Mining Co.,
200 U. S. 527;
Hairston v. Danville & Western Ry. Co., 208 U.
S. 598,
208 U. S. 600;
Union Lime Co. v. Chicago & North Western Ry. Co.,
233 U. S. 211;
Jones v. Portland, 245 U. S. 217, and
Green v.
Page 262 U. S. 537
Frazier, 253 U. S. 233.
These cases are not especially helpful in determining how a
business must be devoted to a public use to clothe it with a public
interest so as to permit regulation of rates or prices. They were
of two classes -- one where condemnation proceedings were opposed
on the ground that private property could only be taken for a
public use and the use contemplated by the legislature was not a
public one. The other was of tax suits in which the validity of the
tax was denied because the use for which the tax was levied was not
a public one. "Public use" in such cases would seem to be a term of
wider scope than where it is used to describe that which clothes
property or business "with a public interest." In the former, the
private owner is fully compensated for his property. In the latter,
the use for which the tax is laid may be any purpose in which the
state may engage, and this covers almost any private business if
the legislature thinks the state's engagement in it will help the
general public and is willing to pay the cost of the plant and
incur the expense of operation.
It has never been supposed, since the adoption of the
Constitution, that the business of the butcher, or the baker, the
tailor, the wood chopper, the mining operator, or the miner was
clothed with such a public interest that the price of his product
or his wages could be fixed by state regulation. It is true that,
in the days of the early common law, an omnipotent parliament did
regulate prices and wages as it chose, and occasionally a colonial
legislature sought to exercise the same power; but nowadays, one
does not devote one's property or business to the public use or
clothe it with a public interest merely because one makes
commodities for, and sells to, the public in the common callings of
which those above mentioned are instances.
An ordinary producer, manufacturer, or shopkeeper may sell or
not sell as he likes,
United States
v.
Page 262 U. S. 538
Freight Association, 166 U. S. 290,
166 U. S. 320;
Terminal Cab Co. v. Kutz, 241 U.
S. 252,
241 U. S. 256,
and while this feature does not necessarily exclude businesses from
the class clothed with a public interest,
German Alliance Ins
Co. v. Lewis, 233 U. S. 389, it
usually distinguishes private from
quasi-public
occupations.
In nearly all the businesses included under the third head
above, the thing which gave the public interest was the
indispensable nature of the service and the exorbitant charges and
arbitrary control to which the public might be subjected without
regulation.
In the preparation of food, the changed conditions have greatly
increased the capacity for treating the raw product and transferred
the work from the shop with few employees to the great plant with
many. Such regulation of it as there has been has been directed
toward the health of the workers in congested masses, or has
consisted of inspection and supervision with a view to the health
of the public. But never has regulation of food preparation been
extended to fixing wages or the prices to the public, as in the
cases cited above where fear of monopoly prompted, and was held to
justify, regulation of rates. There is no monopoly in the
preparation of foods. The prices charged by plaintiff in error are,
it is conceded, fixed by competition throughout the country at
large. Food is now produced in greater volume and variety than ever
before. Given uninterrupted interstate commerce, the sources of the
food supply in Kansas are country-wide, a short supply is not
likely, and the danger from local monopolistic control less than
ever.
It is very difficult under the cases to lay down a working rule
by which readily to determine when a business has become "clothed
with a public interest." All business is subject to some kinds of
public regulation, but when the public becomes so peculiarly
dependent upon a particular business that one engaging therein
subjects
Page 262 U. S. 539
himself to a more intimate public regulation is only to be
determined by the process of exclusion and inclusion, and to
gradual establishment of a line of distinction. We are relieved
from considering and deciding definitely whether preparation of
food should be put in the third class of
quasi-public
businesses noted above because, even so, the valid regulation to
which it might be subjected as such could not include what this act
attempts.
To say that a business is clothed with a public interest is not
to determine what regulation may be permissible in view of the
private rights of the owner. The extent to which an inn or a cab
system may be regulated may differ widely from that allowable as to
a railroad or other common carrier. It is not a matter of
legislative discretion solely. It depends on the nature of the
business, on the feature which touches the public, and on the
abuses reasonably to be feared. To say that a business is clothed
with a public interest is not to import that the public may take
over its entire management and run it at the expense of the owner.
The extent to which regulation may reasonably go varies with
different kinds of business. The regulation of rates to avoid
monopoly is one thing. The regulation of wages is another. A
business may be of such character that only the first is
permissible, while another may involve such a possible danger of
monopoly, on the one hand, and such disaster from stoppage, on the
other, that both come within the public concern and power of
regulation.
If, as in effect contended by counsel for the state, the common
callings are clothed with a public interest by a mere legislative
declaration which necessarily authorizes full and comprehensive
regulation within legislative discretion, there must be a
revolution in the relation of government to general business. This
will be running the public interest argument into the ground, to
use a phrase of Mr. Justice Bradley when characterizing a
similarly
Page 262 U. S. 540
extreme contention.
Civil Rights Cases, 109 U. S.
3,
109 U. S. 24. It
will be impossible to reconcile such result with the freedom of
contract and of labor secured by the Fourteenth Amendment.
This brings us to the nature and purpose of the regulation under
the Industrial Court Act. The avowed object is continuity of food,
clothing, and fuel supply. By ยง 6, reasonable continuity and
efficiency of the industries specified are declared to be necessary
for the public peace, health, and general welfare, and all are
forbidden to hinder, limit, or suspend them. Section 7 gives the
Industrial Court power, in case of controversy between employers
and workers which may endanger the continuity or efficiency of
service, to bring the employer and employees before it and, after
hearing and investigation, to fix the terms and conditions between
them. The employer is bound by this act to pay the wages fixed,
and, while the worker is not required to work at the wages fixed,
he is forbidden, on penalty of fine or imprisonment, to strike
against them, and thus is compelled to give up that means of
putting himself on an equality with his employer which action in
concert with his fellows gives him.
There is no authority of this Court to sustain such exercise of
power in respect to those kinds of business affected with a public
interest by a change
in pais, first fully recognized by
this Court in
Munn v. Illinois, supra, where it said (p.
94 U. S.
126):
"Property does become clothed with a public interest when used
in a manner to make it of public consequence and affect the
community at large. When, therefore, one devotes his property to a
use in which the public has an interest, he in effect grants to the
public an interest in that use, and must submit to be controlled by
the public for the common good, to the extent of the interest he
has thus created.
He may withdraw his grant by
discontinuing
Page 262 U. S. 541
the use; but, so long as he maintains the use, he must
submit to the control."
These words refute the view that public regulation in such cases
can secure continuity of a business against the owner. The theory
is that of revocable grant only.
Weems Steamboat Co. v.
People's Co., 214 U. S. 345. If
that be so with the owner and employer,
a fortiori must it
be so with the employee. It involves a more drastic exercise of
control to impose limitations of continuity growing out of the
public character of the business upon the employee than upon the
employer, and, without saying that such limitations upon both may
not be sometimes justified, it must be where the obligation to the
public of continuous service is direct, clear, and mandatory, and
arises as a contractual condition express or implied of entering
the business either as owner or worker. It can only arise when
investment by the owner and entering the employment by the worker
create a conventional relation to the public somewhat equivalent to
the appointment of officers and the enlistment of soldiers and
sailors in military service.
We are considering the validity of the act as compelling the
employer to pay the adjudged wages, and as forbidding the employees
to combine against working and receiving them. The penalties of the
act are directed against effort of either side to interfere with
the settlement by arbitration. Without this joint compulsion, the
whole theory and purpose of the act would fail. The state cannot be
heard to say, therefore, that, upon complaint of the employer, the
effect upon the employee should not be a factor in our
judgment.
Justification for such regulation is said to be found in
Wilson v. New, 243 U. S. 332. It
was there held that, in a nationwide dispute over wages between
railroad companies and their train operatives, with a general
strike, commercial paralysis, and grave loss and suffering
overhanging
Page 262 U. S. 542
the country, Congress had power to prescribe wages not
confiscatory, but obligatory on both for a reasonable time to
enable them to agree. The Court said that the business of common
carriers by rail was in one aspect a public business because of the
interest of society in its continued operation and rightful
conduct, and that this gave rise to a public right of regulation to
the full extent necessary to secure and protect it; that, viewed as
an act fixing wages, it was an essential regulation for protection
of public right; that it did not invade the private right of the
carriers, because their property and business were subject to the
power of government to insure fit relief by appropriate means, and
it did not invade private rights of employees, since their right to
demand wages and to leave the employment individually or in concert
was subject to limitation by Congress because in a public business
which Congress might regulate under the commerce power.
It is urged that, under this act, the exercise of the power of
compulsory arbitration rests upon the existence of a temporary
emergency, as in
Wilson v. New. If that is a real factor
here, as in
Wilson v. New and in
Block v. Hirsh,
256 U. S. 135,
256 U. S. 157
(
see Pennsylvania Coal Co. v. Mahon, 260 U.
S. 393), it is enough to say that the great temporary
public exigencies, recognized by all and declared by Congress, were
very different from that upon which the control under this act is
asserted. Here, it is said to be the danger that a strike in one
establishment may spread to all the other similar establishments of
the state and country, and thence to all the national sources of
food supply, so as to produce a shortage. Whether such danger
exists has not been determined by the legislature, but is
determined under the law by a subordinate agency, and on its
findings and prophecy owners and employers are to be deprived of
freedom of contract and workers of a most important element of
their freedom of labor.
Page 262 U. S. 543
The small extent of the injury to the food supply of Kansas to
be inflicted by a strike and suspension of this packing company's
plant is shown in the language of the Kansas Supreme Court in this
case (
Court of Industrial Relations v. Packing Co., 111
Kan. 501, 207 P. 806):
"The defendant's plant is a small one, and it may be admitted
that, if it should cease to operate, the effect on the supply of
meat and food in this state would not greatly inconvenience the
people of Kansas; yet, the plant manufactures food products and
supplies meat to a part of the people of this state, and, if it
should cease to operate, that source of supply would be cut
off."
The Supreme Court's construction of the operation and effect of
the act is controlling. The language quoted shows how drastic and
all-inclusive it is.
But the chief and conclusive distinction between
Wilson v.
New and the case before us is that already referred to. The
power of a legislature to compel continuity in a business can only
arise where the obligation of continued service by the owner and
its employees is direct and is assumed when the business is entered
upon. A common carrier which accepts a railroad franchise is not
free to withdraw the use of that which it has granted to the
public. It is true that, if operation is impossible without
continuous loss (
Brooks-Scanlon Co. v. R. Co. Commission,
251 U. S. 396;
Bullock v. R. Co. Commission, 254 U.
S. 513), it may give up its franchise and enterprise,
but, short of this, it must continue. Not so the owner when, by
mere changed conditions, his business becomes clothed with a public
interest. He may stop at will whether the business be losing or
profitable.
The minutely detailed government supervision, including that of
their relations to their employees, to which the railroads of the
country have been gradually subjected by Congress through its power
over interstate commerce furnishes no precedent for regulation of
the business of the
Page 262 U. S. 544
the plaintiff in error, whose classification as public is, at
the best, doubtful. It is not too much to say that the ruling in
Wilson v. New went to the border line, although it
concerned an interstate common carrier in the presence of the
nationwide emergency and the possibility of great disaster.
Certainly there is nothing to justify extending the drastic
regulation sustained in that exceptional case to the one before
us.
We think the Industrial Court Act, insofar as it permits the
fixing of wages in plaintiff in error's packing house, is in
conflict with the Fourteenth Amendment, and deprives it of its
property and liberty of contract without due process of law.
The judgment of the court below must be
Reversed.
