Everyone Should Have the Same Freedom to Contract — or Not

The Supreme Court recently heard oral arguments in a case, 303 Creative v. Elenis, that seems to turn on the meaning of the First Amendment. In my view, this is indeed an important case, but casting it as a free speech dispute is mistaken. The real issue is whether all Americans enjoy freedom of contract, or if, instead, some of us have less freedom than others.

First, I’d like to discuss freedom of contract in general terms. The freedom to enter into a contract with another person is a key element of individual autonomy. If you imagine that you would be better off by collaborating with me in some way, you have the right to propose a deal, setting forth the terms you’d like. I am equally free to accept your offer, thereby creating a contract, or to reject it if I don’t think it is satisfactory. Or I might propose different terms, leading perhaps to bargaining until we’re both happy. Our rights are perfectly symmetrical, and neither is entitled to employ threats or coercion against the other.

It’s important to note that our reasons for our actions don’t matter — except to us. Why you want to contract with me and why I do or do not want to contract with you has no bearing on our respective rights.

Where the law enters into this is that if we agree to a contract, the terms become legally enforceable. But if we don’t agree, then the law has no role to play. We’re both free to go about our lives.

The courts and freedom of contract

American courts used to be fastidious defenders of contractual liberty. Chief Justice John Marshall understood that the reliability of contracts was a pillar of freedom and economic progress, and he never wavered in upholding their inviolability. It was important to him that state governments not interfere with contracts people had made. The Constitution, in Article I, Section 10, forbids states from making laws that “impair the obligations of contracts.”

But as the country grew and special-interest groups gained political power, freedom of contract began to waver. In 1877, the Supreme Court upheld state regulation of the rates that grain elevator owners could charge (Munn v. Illinois, 94 U.S. 113). Such regulation “impaired” existing contracts and all future ones by declaring what the price must be, but a majority of the court declared that the “public interest” was more important than upholding freedom of contract.

Early in the twentieth century, however, the court turned away from such “progressive” legal theory and once again defended freedom of contract against governmental incursions. The most famous case was Lochner v. New York (198 U.S. 45, 1905), a decision that struck down the state’s “Bakeshop Act,” which put a maximum number on hours that a baker could work during a week. The court’s opinion stated, “The general right to make a contract in relation to his business is a part of the liberty protected by the 14th Amendment and this includes the right to purchase and sell labor…. Liberty of contract relating to labor includes both parties to it, the one has as much right to purchase as the other to sell labor.”

Placing a limit on the number of hours a baker could contract to work, the court held, was an “unreasonable, unnecessary and arbitrary interference with the right and liberty of the individual.” Exactly right.

The Supreme Court also defended liberty of contract against a state incursion in Coppage v. Kansas (236 U.S. 1, 1915). Kansas had enacted a statute making it illegal for an employer to decline to hire workers who would not sign a “nonunion” pledge. The court ruled against the Kansas statute, stating, “A state cannot, by designating as ‘coercion’ conduct which is not such in truth, render criminal any normal and essentially innocent exercise of personal liberty, for to permit this would deprive the Fourteenth Amendment of its effective force in this respect.”

In short, if an employer doesn’t want to offer employment to a pro-union worker, he is entitled to do so, just as a worker who doesn’t want to work for a certain employer is free to make that decision. The court reiterated the symmetry of contractual freedom: “There may not be one rule for the labor organization or its members and a different and more restrictive one for employers.”

Similarly, in Adkins v. Children’s Hospital (261 U.S.525, 1923), the court ruled against a federal minimum wage law for women in the District of Columbia. The majority opinion declared, “That the right to contract about one’s affairs is part of the liberty of the individual protected by the Fifth Amendment is settled by repeated decisions of this Court.” Again affirming the symmetry of contractual freedom, the opinion stated that contracting parties “have equal right to seek the best terms by private bargaining.”

The decline of freedom of contract

Unfortunately, during the Great Depression, the court buckled under statist pressure to allow governmental interference with the freedom of contract. It approved of minimum wage laws, rent moratoria, legislation forbidding companies from choosing not to employ prounion workers, and other affronts to contractual liberty. Freedom of contract was no longer important to a court obsessed with the notion that government power could solve all manner of problems.

Moving ahead to the twenty-first century, the opponents of contractual liberty have opened up a new front, using “nondiscrimination” statutes to punish business owners who don’t want to contract with some customers for philosophical reasons. In 2018, the Supreme Court decided one such case, Masterpiece Cakeshop v. Colorado Civil Rights Commission (138 S.Ct. 1719). The case arose when a gay couple sought to purchase a custom wedding cake and the business owner, Jack Phillips, declined to do so on the grounds that under his religious beliefs, marriage was only between a man and a woman. He simply declined the contractual offer, but under the Colorado Anti-Discrimination Act, those who hold themselves out as offering services to the public may not engage in “discrimination.”

The state officials charged with enforcing the law pounced on Phillips, fining him for his violation of the statute. He fought back in the courts, arguing that his rights had been violated — his First Amendment rights. He said that the state was interfering with his sincerely held religious beliefs and thus burdening his right to free exercise of religion; he also said that in seeking to compel him to express support for gay marriage in a cake, the state was interfering with his freedom of speech.

Notice that the violation of Phillips’ rights, namely his right to decline to enter into a contract, was not raised. The Fourteenth Amendment liberty of contract line of argument that would have prevailed early in the twentieth century was ignored in favor of trying to shoehorn the case into the First Amendment.

The Supreme Court reversed the lower court’s decision in favor of Colorado but did so on the narrow grounds that its officials had exhibited clear animosity toward Phillips. It did not reach the First Amendment arguments.

In 2022, a similar case reached the court: 303 Creative v. Elenis mentioned above. The facts are quite similar to Masterpiece Cakeshop. A company that creates websites to celebrate events, including weddings, was targeted by Colorado officials for failing to state that it does not discriminate against any potential customers. The owner of the business, Lorie Smith, holds traditional Christian beliefs that marriage is between a man and a woman. She brought suit against the state’s demand that she say that she would create websites for all customers even though she would decline to create them for events that conflicted with her beliefs.

There was an actual element of speech involved, because the arguments again centered around the First Amendment. The real issue, however, is freedom of contract. Colorado argues that those who go into business in the state don’t have that freedom when it comes to certain groups that supposedly must be protected against discrimination. Business owners may not say “no, thanks” to offers from customers in certain groups, but must serve all. The former symmetry of contractual freedom is gone. Consumers are free to decline to do business with firms they don’t like — not to make contractual offers — but business owners may not decline offers from customers who want them to do things they’d rather not do.

Under the Colorado law, whether or not a business is guilty of “discrimination” and therefore subject to fines is up to the bureaucrats in the state’s Civil Rights Commission. The freedom to decide to accept or reject offers depends on the whims of those individuals — individuals who have been chosen for their dislike of people with religious or political views at odds with “progressive” thinking.

Suppose that someone approached a Colorado website business with a request for a site celebrating a young man’s first deer kill, and the owner, who abhors needless violence against animals, declined to create the site. Would the state go after that business owner? Probably not, and rightly so. The proper response to the rejection of a business offer is to find another business that wants to provide the service, not to run to state officials with a complaint.

Colorado defends its law, saying that it fills a compelling state interest in the fight to “eradicate discrimination.” But that isn’t a governmental interest at all. Government has no business trying to dictate what ideas people will hold. If someone disapproves of same-sex marriage, that is no more a reason for state coercion than if someone disapproves of deer-hunting. The purpose of government is to protect the liberty and property of the citizens, not to force them to accept any particular beliefs.

Colorado also argues that its law is needed to prevent “dignitary harm,” which is to say, hurt feelings. If a gay couple were to approach businesses like 303 Creative or Masterpiece Cakeshop and be told, “no, we don’t do that kind of work,” they might find that deeply hurtful. But again, protecting people against the possibility of hurt feelings is not a justification for state coercion. Hurt feelings happen all the time when humans interact with each other. As long as one party has done nothing aggressive or violent against the other, the law has no role to play.

We will find out how the Supreme Court rules in the 303 Creative case in a few months, but even if it decides in favor of Lorie Smith on First Amendment grounds, that won’t do anything to stop the assault on contractual freedom. Unfortunately, the court will not dispose of the case by saying, “The Colorado law is an unconstitutional interference with the freedom of contract enjoyed by citizens under the Fourteenth Amendment. If a customer is unhappy at being turned down, the right thing to do is to go to another business that’s eager to provide the service, not to go crying to bureaucrats.”

This article was originally published in the July 2023 edition of Future of Freedom.

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