A Matter of Judgment: Economic Liberty and the Pennsylvania Constitution

Anthony Sanders · May 23, 2020

Last week, the Pennsylvania Supreme Court issued a landmark decision for the right to earn a living.[i] The decision sparked a heated debate among the justices about the court’s role in deciding constitutional challenges to economic regulations. In this post, I’ll explain what happened and why the court’s chief dissenter, who accused the majority of “legislating,” misses the mark.[ii]

The case was on appeal from the dismissal of IJ client Sally Ladd’s challenge to the state’s Real Estate Licensing and Registration Act (RELRA).[iii] The facts were simple: Sally worked from home helping people book short-term rentals of their properties on sites like Airbnb. But she was forced to shut down after Pennsylvania told her she needed a real-estate license, which would have required spending three years working for a licensed broker, taking hundreds of hours of courses focused on buying and selling property, and opening a brick-and-mortar office.

Sally sued, arguing that forcing her to spend years of her life learning about work she would never perform, and thousands of dollars opening an office she would never need, imposed excessive burdens on her right to earn a living under the Pennsylvania Constitution. Specifically, Sally argued that RELRA—at least as applied to her niche business—violated Article I, Section 1, which protects the rights to “acquir[e] . . . property” and “pursu[e] . . . happiness.”

The Commonwealth Court dismissed, reasoning that whatever RELRA’s burdens on her business, she could not possibly prevail because the licensing requirements, in general, served a valid purpose: ensuring that people who buy and sell property for a living are competent. Sally, of course, does not buy or sell property. So she appealed.

Sally’s appeal presented the Supreme Court with what was, surprisingly, an “issue of first impression”: whether it is possible to challenge excessive occupational licensing requirements under the Pennsylvania Constitution, and if so, how much scrutiny courts should apply. In other words, when the government erects senseless barriers to your ability to earn a living, do courts have a job to do, or does the legislature get free reign?

In a 5-2 decision, the court held that the legislature does not get free reign. The court began by declaring that the Pennsylvania Constitution protects the “undeniably important” right to earn a living and that, when a law restricts that right, a “heightened rational basis test” applies. To survive that test, laws must (1) bear a “real and substantial relation to the public interest they seek to advance” and (2) cannot be “unduly oppressive or patently beyond the necessities of the case.” The court then applied this test to RELRA’s requirements in light of its purpose: protecting the public from fraud by those “engaged in the business of trading real estate.”

In applying the test, the court found that most of RELRA’s requirements “pertain to the work of traditional real estate brokers, but not to the services contemplated by [Sally’s] unique business model.” Worse, forcing her to meet these requirements, which did little “to further the statutory objectives of RELRA,” would impose major burdens, like “the lost opportunity cost of shuttering [her business] during the apprenticeship” and the “additional overhead” of an office she didn’t need. The court therefore held that Sally raised “a colorable claim that RELRA’s requirements are unconstitutional as applied to her because they are, in that context, unreasonable, unduly oppressive and patently beyond the necessities of the case.”

Justice David Wecht dissented. In his view, the majority’s decision was a modern-day Lochner—the 1905 U.S. Supreme Court decision striking down a cap on the number of hours bakers could work.[iv] As Wecht (wrongly[v]) sees it, Lochner “had nothing to do with the text or history of the Constitution,” but “[was] based upon nothing more than the policy preferences of the justices.” Wecht’s theory is that Lochner “jumpstarted an era of judicial overreach” into “the realm of legislative value judgments” that the U.S. Supreme Court correctly ended in the 1950s, but that the Pennsylvania Supreme Court has “mistakenly” carried on ever since.

For Wecht, this case is no different. Sally’s right to earn a living free from unreasonable government regulation, he quips, exists only within the Pennsylvania Constitution’s “secret repository of unenumerated rights.” And the majority’s “heightened rational basis test” protecting that right, he argues, has no basis “in the text or history of our Constitution.” Rather, as in Lochner, the majority was simply “legislating.” The result, concludes Wecht, is “a system of government by judges,” one that “deprive[s] the citizens of this Commonwealth of the right to govern themselves.”

Respectfully, I disagree with Justice Wecht on just about every point in his dissent (including several not discussed in this post). But I want to focus on his separation-of-powers argument, which I think is important and worth responding to, both in its own right and because it colors most of his other points.

Let’s start with the text of the Pennsylvania Constitution—something Wecht never actually discusses. Article II, Section 1 vests the General Assembly with “the legislative power.” That is, the General Assembly has the power to enact laws. But Article I, Section 25 is also clear that the legislative power is not unlimited. Rather, the General Assembly enjoys only those powers “delegated” by the people, while all rights listed in Article I are “excepted out of the general powers of government and shall forever remain inviolate.”

So, which powers were delegated? For that, it helps to know why the Pennsylvania Constitution was adopted in the first place. The Commonwealth’s framers gave some indication at the Constitutional Convention of 1776, when they convened to establish a government “that would preserve and establish our liberties, and [] transmit them inviolate to posterity.”[vi] Their goal, they said, was “to enable . . . individuals . . . to enjoy their natural rights . . . and to promote their safety and happiness.”[vii]

Broad language, to be sure, but I think it’s safe to say (as others have ably argued[viii]) that the power to protect natural rights and promote safety does not include the power to forbid individuals from working unless they waste years training for a job they have no desire to do. That, I submit, is not a power any “people” has to “delegate,” and it is not a power that has anything to do with preserving liberty.

But even assuming Pennsylvanians could delegate that power to the General Assembly, the question then becomes: Does it curtail a right listed in Article I that is “exempted out of the general powers of government”? At least for Sally, Article I, Section 1 provides the answer. It secures the “inherent and indefeasible rights . . . of enjoying and defending life and liberty, of acquiring, possessing, and protecting property. . . and of pursuing . . . happiness.”

There is no shortage of scholarship demonstrating that this language was drawn from Locke,[ix] who recognized “labour” and “industry” as fundamental to human life.[x] But scholarship aside, it seems inconceivable that when the framers wrote of “acquiring property” and “pursuing happiness,” they meant to establish a society where Pennsylvanians would rob and cheat their way to property and happiness, rather than working for it honestly—just as Sally wants to do.

The point is, the right to earn an honest living is enshrined in the Pennsylvania Constitution and the legislature’s power to restrict that right is limited. The majority recognized both points. Justice Wecht simply ignores the textual basis for them.

That leaves the question of the court’s role. Article V, Section 1 vests courts with the “judicial power.” Most jurists—including Justice Wecht himself in other cases—agree that this power includes the ability to enjoin unconstitutional laws. Moreover, Article VI, Section 3 requires judges to “support, obey, and defend . . . the Constitution of this Commonwealth” and to “discharge [that] dut[y] with fidelity.” So the issue is really about how, when an economic regulation is challenged, courts should perform their duty.

For that, it makes sense to use some sort of test. Wecht claims “there is no conceivable justification” for the majority’s “heightened rational basis” test. Instead, he argues, the only proper test is the federal test, which asks whether a law is “rationally related to some legitimate government interest.”

But why? If Wecht’s point is that Pennsylvania’s more stringent test appears nowhere in the text of the Pennsylvania Constitution, I don’t see how that helps him. By that standard, the federal test—which likewise appears nowhere in the text of the U.S. Constitution—was also simply “invented.”[xi] If Wecht’s point is rather that the federal test should apply because the U.S. Constitution demands deference to Congress, that doesn’t help him either, since Sally’s case is about whether the state constitution demands deference to the state legislature (which, again, it does not).

And even if Wecht truly is driven by state separation-of-powers norms, it’s not clear how the federal test serves them. Under that test, courts often see it as their duty to speculate about what lawmakers “might have” believed,[xii] even if those beliefs did not “actually motivat[e]” the legislature.[xiii] That approach demands fidelity, not to the Pennsylvania Constitution or even to legislative intent, but to judges’ imaginations. That is not the system Pennsylvania’s framers adopted in 1776.

In truth, the majority’s “heightened rational basis” test—which really just asks whether a law bears a real-world relationship to protecting the public and does so in a non-oppressive manner—is the least courts can do to protect the right to earn a living. The test Wecht prefers—which the majority rightly calls “toothless”—is simply insufficient to protect that “indefeasible” right. Fortunately, Sally Ladd’s victory ensures Pennsylvania courts will provide meaningful protection for the right to earn a living for decades to come.

Joshua Windham is an attorney at the Institute for Justice. He is the lead attorney in Ms. Ladd’s case.

[i] Ladd v. Real Estate Comm’n, No. 33 MAP 2018, 2020 WL 2532285 (Pa. May 19, 2020), https://tinyurl.com/ybld397x.

[ii] Ladd, 2020 WL 2532285 (Wecht, J., dissenting), https://tinyurl.com/yacv8la4.

[iii] Airbnb Property Manager Files Constitutional Challenge to Pa. Real Estate Licensing Regime, Institute for Justice (July 18, 2017), https://tinyurl.com/ybj6ccbp.

[iv] Lochner v. New York, 198 U.S. 45 (1905).

[v] Timothy Sandefur, Why Lochner was rightly decided, Freespace (April 17, 2005), https://tinyurl.com/ybvseoxk.

[vi] Proceedings Relative to the Calling of the Conventions of 1776 and 1790, at 43 (J. S. Wiestling ed. 1825).

[vii] Proceedings, supra, at 54.

[viii] Randy E. Barnett, Restoring the Lost Constitution: The Presumption of Liberty, at 29–30 (2013).

[ix] Steven G. Calabresi & Sofia M. Vickery, On Liberty and the Fourteenth Amendment: The Original Understanding of the Lockean Natural Rights Guarantees, 93 Tex. L. Rev. 1299, 1316–17 (2015).

[x] John Locke, Second Treatise of Civil Government §§ 25–51, in Two Treatises of Civil Government (Peter Laslett ed., Cambridge Univ. Press 1988) (1690).

[xi] Clark Neily, No Such Thing: Litigating Under the Rational Basis Test, 1 NYU J.L. & Liberty 898, 899 (2005) (“The rational basis test was invented in the Supreme Court more than 100 years ago . . . .”).

[xii] Williamson v. Lee Optical, 348 U.S. 487 (1955).

[xiii] Neily, supra, at 899–900 (some emphasis omitted).