National Labor Relations Board v. Jones And Laughlin Steel Company (1937) – Guest Essayist: Joerg Knipprath
After his landslide reelection victory in 1936, President Franklin Roosevelt delivered a message to Congress on February 5, 1937, that decried the alleged, but fictional, congestion of judicial dockets due in part, he explained, to the incapacity of aged or infirm judges. He proposed a law that would allow him to appoint up to six new Supreme Court justices in addition to the current number, one for each justice over age 70. He repeated the gist of what came to be known as his Court-packing plan in a “Fireside Chat” to the American people on March 9, 1937.
On March 29, 1937, in West Coast Hotel v. Parrish, the Supreme Court, by 5-4, upheld the constitutionality of a Washington State minimum wage law for women, a result that favored policies of both the Roosevelt administration and its labor allies. To do so, Chief Justice Charles Evans Hughes’s opinion overturned an on-point precedent from 1923 that had been reaffirmed in the Court’s preceding term. Two weeks later, in National Labor Relations Board v. Jones & Laughlin Steel Company and two companion cases, the Court upheld a key piece of New Deal legislation, the controversial National Labor Relations (Wagner) Act. Again, the vote was 5-4, and, again, the opinion was written by Hughes. This time, the majority had to reject its interpretation of Congress’s power to regulate interstate commerce that it had maintained as recently as the previous year. A month thereafter, on May 24, in yet another 5-4 vote, the Court in two cases (Stewart Machine Company v. Davis and Helvering v. Davis) upheld the Social Security Act through a broad reading of Congress’s powers to tax and spend. Justice Benjamin Cardozo wrote the opinions. He, too, had to repudiate the holding of a precedent from the prior term. Most peculiar was that two of those discredited recent cases were authored by Justice Owen Roberts, who now joined the majority in each of the 1937 opinions.
The close timing of FDR’s attack on the judiciary with the Court’s sudden flood of pro-New Deal decisions prompted wide speculation that the justices had buckled under the political pressure in what was termed “the switch in time that saved nine,” a play on a traditional homespun advice. More recently, scholars have raised doubt about the accuracy of that claim. The man at the heart of the matter, Roberts, had told the other justices in December, 1936, of his decision to vote in favor of the minimum wage law. That date was well before Roosevelt’s speeches. Moreover, there was evidence in other cases in the mid-1930s that Roberts and Hughes were moving towards more accommodation of New Deal-type laws. Last, Roosevelt’s proposal was seen as a blatant attack on the judiciary and denounced immediately even by many of his allies. Business groups were joined by organized labor and agricultural associations in criticizing the plan. Polls showed that a majority of Americans opposed it even in February and March, and that it hurt the popularity of the President and the political standing of the Democratic Party. Powerful Democrats in Congress announced opposition. The justices, who read the newspapers, were keenly aware of the measure’s unpopularity, so it is unlikely that Roberts was swayed by it.
Of these cases, the most instrumental in the long run in expanding the power of the general government and threatening the traditional structure of federalism, was Jones-Laughlin. There, the National Labor Relations Board (NLRB) had determined that the company was engaged in “unfair labor practices affecting [interstate] commerce,” in breach of the Wagner Act. The allegation rested on the company having fired ten union organizers, thereby violating the statute’s prohibition of discrimination and coercion based on an employee’s membership in a labor union or participation in labor organizing.
The Chief Justice described at length the company’s size and its impact on a major national market. It was the fourth largest steel producer in the United States. As a highly integrated enterprise, it operated at several levels of the market, namely, raw material extraction, manufacture of pig iron, refining of steel, finishing of steel products, and warehousing and sales of its products. It owned mines of iron ore and coal, as well as limestone properties needed for steel manufacturing. Some of these mines were out of state. It operated railroads, steamships, and barges. It had sales offices in twenty cities and a Canadian subsidiary. Three-fourths of its product was shipped out of state. The incidents alleged took place at its manufacturing plant in Aliquippa, Pennsylvania, where 10,000 employees worked. The Court also noted that over a half-million worked nationwide in the production of steel or its raw materials.
Adopting the Court’s reasoning from decades before in U.S. v. E.C. Knight Co., the company argued that manufacture was not commerce and that the discharge of the employees had occurred in its local, not interstate, activities. The interstate aspects of its operation, such as the carrying of raw materials to the plant, had ended when they were deposited in the factory’s yards. Then, the local manufacture of the steel had occurred. Once that was completed, the transformed products came to rest and were sold independently as orders were received.
The government responded that the manufacture of steel at the Aliquippa plant was but one step in the stream of commerce that began with extraction of raw materials and culminated in sale and delivery of finished products to customers. The “stream [or current] of commerce” theory was a metaphor by Justice Oliver Holmes in a 1905 case to get around E.C. Knight and uphold federal regulation of a stockyard monopoly. Such stockyards could be regulated even if local manufacturing plants could not, Holmes concluded, because the former represented a temporary stop in transporting animals in a continuous movement from their origins on ranches to their final destiny in slaughterhouses.
Hughes disregarded the company’s production-commerce distinction as well as the government’s reliance on the stream of commerce theory. Instead, what mattered was the effect a local activity had on interstate commerce. “Although activities may be intrastate when separately considered, if they have such a close and substantial relation to interstate commerce that their control is essential or appropriate to protect that commerce from burdens or obstructions, Congress cannot be denied the power to exercise that control.” Hughes thus laid out two theories for Congress to reach any local activity, 1) if the regulated activity or evil has a sufficient effect on interstate commerce or 2) if the regulation of the local activity is necessary and proper to regulate interstate commerce. Both approaches have been used to uphold the increasingly expansive application of the Commerce Clause.
In Jones-Laughlin itself, Hughes examined the history of labor strife resulting from employers’ refusals to permit employee organizing. He characterized the steel industry as “one of the great basic industries of the United States, with ramifying activities affecting interstate commerce at every point.” Thus, considering the size of the company and the nature of its connection to interstate commerce, a labor stoppage would have an immediate and paralyzing effect on interstate commerce in steel.
In Jones-Laughlin, Hughes may have focused on the company’s size and the significance of the steel market to justify the reach of Congress’s commerce power. More telling was his use of the “commerce-affecting” approach in the two companion cases. In particular, in NLRB v. Friedman-Harry Marks Clothing Co., the same doctrine was applied to retaliatory firing by a Richmond company whose operation was not “integrated” at different market levels and which was much smaller than the steel giant, though it did sell outside Virginia. The clothing manufacturer employed only 800 people out of the 150,000 working at 3,300 such establishments nationwide.
In dissent, Justice James McReynolds took note of the lack of actual effect on interstate commerce shown. As to the clothing manufacturer, its business was so small that closing it would not materially affect relevant interstate commerce. However, even in Jones-Laughlin, only ten men out of ten thousand were fired. “The immediate effect…may be to create discontent among all those employed and a strike may follow, which, in turn may result in reducing production, which, ultimately, may reduce the volume of goods moving in interstate commerce.” [Emphasis added.] No facts were shown as to any of this. McReynolds concluded that management of a manufacturing plant is distinct from commerce and can be regulated by the states. Congress cannot gain that power because of “some vague possibility of distant interference with commerce.”
After Jones-Laughlin, Congress’s use of the Commerce Clause ballooned while the interstate component became increasingly remote. In NLRB v. Fainblatt (1939), the Court upheld application of the same statute to a small-scale garment factory that sold only in-state, because a labor dispute might have a slight disruptive effect on interstate commerce. In similar vein, the Court upheld the constitutionality of federal laws enacted under the Commerce Clause in areas other than labor law. Prominent among them was the notorious case Wickard v. Filburn (1942), which upheld the Second Agricultural Adjustment Act’s detailed marketing scheme for wheat farmers. Although Filburn consumed most of the wheat he produced, his production exceeded his allotment, and he was subject to a fine. Justice Robert Jackson opined that Congress sought to prevent depressed prices caused by overproduction. Even if Filburn’s excess production alone had a negligible effect on the interstate market in wheat, the aggregate effect of all farmers’ production had a substantial effect on that market. This “aggregation of evils” theory is, of course, tautological.
In addition, the Court endorsed using the Commerce Clause broadly to regulate local activities for purposes other than preventing disruption to interstate commerce. Thus, Congress could regulate wages and hours of employment in U.S. v. Darby Lumber Company (1941), prohibit race discrimination in hotels in Heart of Atlanta Motel v. U.S. (1964) and restaurants in Katzenbach v. McClung (1964) through the Civil Rights Act of 1964, and criminalize the production of marijuana for personal use in Gonzales v. Raich (2005).
It is difficult to discern what today restricts Congress’s legislative power, considering the expansive reading the Court has given the Commerce Clause alongside other clauses that are also supposed to define, i.e., limit, that power. The justices have repeatedly paid lip service to the theory of limited legislative power. Chief Justice John Marshall long ago set the tone when he declared that the enumeration of Congress’s powers presupposes something not enumerated. Hughes in Jones-Laughlin voiced similar fealty to the distinction between national and local commerce. But even as they purported to fret about the structure of federalism in theory and words, the justices excused almost every erosion of that structure in practice and effect. A rare exception to that trend was National Federation of Independent Business v. Sebelius (2012), the ObamaCare decision, where the Court found that Congress could regulate under the Commerce Clause only if someone has engaged in an activity but could not compel someone to act. While notable, the decision is feeble as a limit on Congress’s powers.
The Court initially resisted the constitutional revolution demanded by the New Deal. But the Court cannot hold back a political tide. Eventually it yields to the election returns and the political facts on the ground. So it was in 1937, as Chief Justice Hughes and Justice Roberts changed constitutional course, even as the dissenters correctly foresaw the massive accretion of power to the general government that is still with us. Using a farming analogy, President Roosevelt claimed that the Court was not pulling in the same direction as the other two horses, so that the driver–the American people–were unable to get their field plowed. But several generations of Americans have decided that a large bureaucratic welfare state is the crop they want to cultivate, and the Court has long since joined the team.
National Labor Relations Board v. Jones and Laughlin Steel (1937) Supreme Court decision: https://www.law.cornell.edu/supremecourt/text/301/1
An expert on constitutional law, and member of the Southwestern Law School faculty, Professor Joerg W. Knipprath has been interviewed by print and broadcast media on a number of related topics ranging from recent U.S. Supreme Court decisions to presidential succession. He has written opinion pieces and articles on business and securities law as well as constitutional issues, and has focused his more recent research on the effect of judicial review on the evolution of constitutional law. He has also spoken on business law and contemporary constitutional issues before professional and community forums, and serves as a Constituting America Fellow. Read more from Professor Knipprath at: http://www.tokenconservative.com/.