In the case of Adkins v. Children's Hospital (261 U.S. 525 (1923)), a Federal law establishing a
minimum wage in Washington DC was found to be unconstitutional because it
interfered with the freedom of contract included within the Due
Process Clause of the 5th
The US Supreme Court found
that the law artificially restricted an employer's ability to negotiate
employment contracts. They found that the law "takes account of the
necessities of only one part to the contract. It ignores the necessities
of the employer by compelling him to pay not less than a certain sum, not
only whether the employee is capable of earning it, but irrespective of
the ability of his business to sustain the burden."
This case invalidated a
Federal law, on the basis of the 5th Amendment. A few years later, the Court overturned a
State minimum wage Statute in Morehead v. New York ex re.
Tipaldo (298 U.S. 587 (1936)), but
the grounds for that decision was not the 5th Amendment (which only applied to the Federal
government), but on the idea that setting a minimum wage fell outside of a
State's police powers because it did not serve a valid State
The Court argued that if the
State wanted to raise the standard of living for poor people, the way to
do it would be for the State to pay welfare and make it up in a tax that
affected everyone equally. It isn't fair to ask a class of people
(employers) to take on the entire burden themselves.
The decision in this case was
later overturned in West Coast Hotel Co. v. Parrish (300 U.S. 379 (1937)).
Parrish used the alternate logic that said that it
shouldn't be the State's burden to subsidize dishonest employers who are
making extra profits by exploiting their poor, hungry workers.
There was a big change in
how the country viewed employment law between Adkins (1923) and Parrish (1937) because of the Great Depression.