Laws Preventing Business from Displaying the Costs of Regulation Are Unconstitutional

Minimum wage laws have forced restaurants to raise prices and lose business.  Many owners are not happy. One recourse is to tell customers about the effects of these laws on their pocketbook. Some restaurants are posting a minimum wage surcharge on their menus, so that diners recognize the reasons that establishments have jacked up their prices.

But in some jurisdictions this surcharge is illegal. For instance, in New York a statewide law bans the practice even if notice is prominently displayed. Such laws violate the First Amendment and block one of the best ways of getting the public to debate the costs of minimum wage laws.

Commercial speech gets somewhat less protection than political speech under current doctrine. But even if this surcharge and explanation were (wrongly) given only the protection afforded to commercial speech, such laws would still be unconstitutional. Commercial speech, like advertising, cannot be prohibited unless the restriction is “narrowly tailored to advance a significant government interest.” But it is hard to see any significant government interest advanced by these laws.

In any event, the speech at issue here is political speech, because it provides information about the effects of the minimum wage. If so, it can only be suppressed by a compelling government interest, like forestalling violence. To be sure, the surcharge is motivated by commercial interests. But the political nature of speech should not be measured by its motivation but by its content.  Unions make endorsements at election time that are surely motivated by what they believe it is good for the livelihood of their officials and their members but they are nonetheless obviously political speech. Economics is a big part of politics.

Could the government constitutionally prevent businesses from breaking out sales taxes as a separate item on receipts? Clearly not, and the reason is that structure of this receipt conveys information about tax rates, an obviously political subject. If sales taxes were not displayed separately, sales taxes would be even higher than they are.  Customer reactions confirm that the restaurants’ surcharges also implicated political debate: some people were so offended by its implicit critique of the minimum wage that they refused to eat at restaurants with the surcharge.

New York’s law not only offends Supreme Court doctrine but  also undermines the core mission of the First Amendment. Information about politics is underproduced, because not only the speaker but democracy as a whole benefits from it. Yet the speaker cannot capture the benefits of others or force them to contribute to the costs of his speech, meaning that many people will speak on politics less than is optimal.   Government restrictions only exacerbate the problem of underproduction.

Moreover, most citizens pay little attention to  the effects of policies because their vote is not likely to affect the results of election that determine policies.  They are particularly likely not to consider the effects of legislation, like the minimum wage, that may have enormous total costs, but impose relatively small and hidden costs on individuals.  Getting voters to talk about the real costs of regulation over dinner advances democratic deliberation.

Reader Discussion

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.

on March 13, 2017 at 09:24:38 am

Begin Here;

"Commercial speech, like advertising,  cannot be prohibited unless the restriction is “narrowly tailored to advance
a ** "significant government interest.”** But it is hard to see any  significant government interest advanced by these laws."


Only people have interests.

Governments have FUNCTIONS through which interests of people may be involved.

The interests of people may result in the use of the functions of governments for THOSE interests.

"Significant government interest" is a judicial construct; AND, it is falsely premised on the "personification" of the mechanism (or "system" if you prefer) government.

That is not to say that all uses of the FUNCTIONS of governments for collective or individual interests are not judicially sustainable - but they remain functions.

If an action impedes or conflicts with a lawful FUNCTION of a government, it is the FUNCTION that is subject to evaluation and comparison to the freedom otherwise inherent in the action.

Try that on the menu instead.

read full comment
Image of R Richard Schweitzer
R Richard Schweitzer
on March 13, 2017 at 10:59:42 am

Appalling legislation! Wonder if this statement would pass legal muster in NY:

New York State law prohibits commercial establishments from posting an itemized accounting of the over-head costs calculated into your total bill.

In order to keep your dining experience affordable, this restaurant pays its employees the minimal wage required by law.

read full comment
Image of Paul Binotto
Paul Binotto
on March 13, 2017 at 11:31:53 am

Is there a law/regulation that keeps employers from showing the hidden portion of the social security tax?

read full comment
Image of Jerry Stratton
Jerry Stratton
on March 13, 2017 at 14:55:48 pm

While we're at it, why not go all the way and use only personal income taxes? That way everyone is made fully aware of how much of their income goes to government. When taxes are buried in the purchase price the voting public is unaware of how much we really pay for government. I wonder how much that really is.

Wouldn't that be as simple as:

Tax burden = Total gross income - Total government taxes

or, using 2013 data:

$3.43 trillion = $9.03 trillion - $5.6 trillion (federal only)

As a percentage that's about a 38% tax rate for federal taxes.

Add state and local taxes and we're certainly over 50%.

Am I allowed to publish that on my menu? Or the comment section of blog?

read full comment
Image of Scott Amorian
Scott Amorian
on March 13, 2017 at 17:28:58 pm

I share McGinnis’s view that the First Amendment should protect a businessperson’s speech rights, and any restrictions should—at their most extreme--be narrowly tailored to advance a significant public interest. And I also concur that the speech in question looks like political speech, arguably justifying a still more lenient standard.

If the display of information somehow obscured the price that the business would be charging customers, I could see a public interest in prohibiting that. And just as the FDA has established a standardized format for disclosing nutritional information on foods, perhaps some goods/services have standardized formats for displaying price/billing information. But it’s not clear to me that this should prevent a business from ALSO displaying price/billing information in a non-standard format.

My sole quibble is with McGinnis’s assertions of the claims of businesses as if they were facts. Those assertions might be accurate, or might not. Does it matter to the First Amendment analysis? As far as I’m aware, businesses—and anyone else—can forthrightly lie regarding political topics, provided the lies are not slanderous or libelous. In short, the analysis of this matter rests entirely on the lack of justification advanced by the state; whether or not there is any merit in the business’s speech is beside the point.

read full comment
Image of nobody.really
on March 14, 2017 at 03:03:39 am

I have always wonder why is that there is no breaking out of state and federal taxes in your gasoline receipts while they are always shown in every other item we purchase. I can see why the government want to hide them but without a direct prohibition it is difficult to imagine that all gas stations and oil companies will hide what it is obviously in their interest to show if only to prevent their easy demonization every time the price shots up.

read full comment
Image of Juan Carlos de Cardenas
Juan Carlos de Cardenas
on March 14, 2017 at 10:40:20 am

"I have always wonder why..."

Well that is because if that data were to be made available, people would soon learn that the biggest profiteers from the "nasty" oil industry are State Governments, who gross more in profits, by doing nothing of value, than do the oil companies whose investments are ion the trillions of dollars.
Nice gig, If you can get it!

read full comment
Image of gabe

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.