April 20, 2020

By: Sarah E. Carson,Partner, Smith Currie & Hancock LLP.

Imagine you are a contractor from New York, where construction work is deemed nonessential, and your projects are being shut down. To stay afloat, your company begins exploring its options under the newly passed CARE Act. Knowing it is essential to keep working, the company also seeks opportunities in a locality where construction services are deemed essential, such as West Virginia.

Under West Virginia’s executive order, construction is permitted, and the Order explicitly states it is not “meant to impede commerce.” However, noncitizens of certain states – including New York – who seek, but have not secured, essential construction work may be required to endure a 14-day self-quarantine prior to the commencement of any work obtained. Construction companies from non-resident states can perform projects in states like West Virginia, but project commencement must be delayed by two weeks, something to keep in mind when negotiating your contracts.

By contrast, residents from other states where construction is also deemed nonessential, such as Pennsylvania, or states where construction is deemed essential, such as North Carolina, may take contracts for work in West Virginia and will not be required to endure a 14-day self-quarantine before commencing the work. Obviously, the opportunity to commence work without delay could be quite an advantage when competing for jobs in certain states. Not only are these limitations erecting barriers to economic opportunity, but they may also violate the Constitution.

In other words, in an effort to reduce an influx of non-residents from states with heavily concentrated out brakes of COVID-19, West Virginia, and states with similar orders, have restricted citizens of specific states from performing construction work within West Virginia, without placing the same restrictions on all states or residents of their own state, cue the Dormant Commerce Clause.

Ultimately, the Dormant Commerce Clause provides that Congress has been given exclusive power over interstate commerce (through the Commerce Clause). States cannot discriminate against or unduly burden interstate commerce, even in the absence of federal legislation regulating the activity. For reference, interstate commerce includes traffic, transportation, exchanges, and transactions that occur between states within the U.S. The goal is to ensure states do not monopolize a specific industry within the state by prohibiting the involvement of outside states.

By restricting residents of New York from performing work in West Virginia, or any other state, it would appear the restricting state has burdened interstate commerce. West Virginia’s Governor, Jim Justice, acknowledged the possibility that his order may trigger the Dormant Commerce Clause stating, “[I want]] to be really respectful of constitutional rights, but people are dying all over this country right and left. … I may lose at the end of the day, but I’m going to try to protect our people.”

To be clear, this is by no means the first time a state action has been challenged on the basis that it violates the Constitution by usurping federal authority and going too far in restricting or regulating interstate commerce.

When a state law is neutral and does not affirmatively discriminate against citizens of a specific state, but still impacts interstate commerce, a balancing test is implemented to evaluate the legitimacy of the state action. Under this test, the court presumes the statute in question is valid unless the burden imposed on interstate commerce clearly outweighs the local benefits the state is attempting to facilitate through the legislation. The weight of each is determined by a judge, not by the court of public opinion nor by the declaration of a local public official.

However, when a state action appears to discriminate against selective states, impacting interstate commerce, the Supreme Court of the United States will apply the highest and most stringent standard of judicial review, the strict scrutiny analysis. Under this standard, a State must demonstrate 1) a compelling governmental interest and 2) that the law in question is narrowly tailored to achieve that interest. In other words, when strict scrutiny is applied, very few laws will receive the constitutional stamp of approval from the Supreme Court.

This leaves us with three questions:

1) Do orders, such as West Virginia’s, impact interstate commerce?

The answer is almost undoubtedly, yes.

2) Are state powers to restrict interstate commerce enlarged in a time of emergency?

The law does not appear to explicitly allow this, but it is likely a state of emergency, and the surrounding circumstances would factor heavily weighted when determining the reasonableness of the state action.

3) Would the strict scrutiny or balancing test standard apply? 

To be determined. Reading the plain language of the law, States with orders similar to West Virginia appear to have placed restrictions only on certain states, which would seemingly trigger strict scrutiny. However, under the circumstances, it may be found that the state has a compelling governmental interest in protecting its residents from potential exposure to COVID-19, especially when considering the various Declarations of a State of Emergency across the country, including a national declaration by the President. The analysis would then center on whether the restrictions were “narrowly tailored” to satisfy the compelling interest.

While contractors wait for a determination on the legality of such states’ actions, they are encouraged to document their efforts to perform work in these restrictive states and to proactively identify states that do not impose time or other restrictions on construction activities and to focus their project procurement efforts there. In the words of Arnold Palmer, “[t]he road to success is always under construction.”

To be clear, we are not opining on whether the state orders are or are not constitutional. Many minds will differ on that point, but we are providing a basis for you to conduct your own analysis and then to seek informed legal advice tailored to your specific circumstances. With millions of people joining the unemployment lines, we know the construction industry is vital to getting America back to work.

The views expressed in this article are not necessarily those of ConsensusDocs. Readers should not take or refrain from taking any action based on any information without first seeking legal advice.