CrestCare — Constitutional?

CrestCare — Constitutional?

The Obama administration recently passed CrestCare. Never heard of it? It is a new federal law which requires every citizen to brush their teeth with Crest brand toothpaste. Certainly, the law must be unconstitutional, although it would be nice not to smell bad breath on the elevator ride up to the office, or on the construction site, in the morning. And yet maybe, just maybe, the law would be upheld by the Supreme Court if it was ever challenged.

Of course, there is no CrestCare. It is a wonder whether the federal government would be empowered to pass such a law if the United States Supreme Court upholds the constitutionality of ObamaCare’s requirement that all citizens have health insurance. On Monday, the high Court began hearing oral arguments to determine whether that part of ObamaCare, in addition to others, are constitutional. In the case, titled Department of Health & Human Services, et. al. v. States of Florida, et. al., No. 11-398, the attorney generals of various states have brought suit to bar enforcement of ObamaCare, the details of which have been covered ad nausea elsewhere, and which I will leave for your musings.

The marrow of the government’s argument as to why ObamaCare should be upheld is the Commerce Clause, which gives Congress the exclusive authority to “regulate commerce . . . among the several States.” That is my emphasis. Over the years, the Supreme Court has read “among” to include anything that could affect interstate commerce, even if the conduct in question is wholly intrastate in character. In Wickard v. Filburn, for example, the Court held in 1942 that the federal government could regulate a farmer’s growth of wheat in his own backyard even though it was for his own consumption. The reason: the farmer’s growth would affect the interstate flow of wheat. Then, in Gonzalez v. Reich, the high Court in 2005 held that the feds could regulate wholly intrastate consumption of marijuana under California’s Proposition 215.

While the Court’s decisions in both Wickard and Gonzalez stretch the limits of “among the several states” to their intellectual limits, neither decision dealt with a federal law compelling someone to do something. Instead, both decisions involved a federal law prohibiting someone from doing something. Whereas part of ObamaCare compels every living citizen to buy health insurance. This seems to stretch the Commerce Clause so far that it has no limits left. Even if you like the idea of nationalized healthcare, this is not a constitutionally permissible way to go about it.

If the Court upholds the part of ObamaCare mandating health insurance for all citizens on Commerce Clause grounds, there is nothing barring the feds — or Crest — from mandating CrestCare.

An offer you can’t refuse.

An offer you can’t refuse.

The WSJ recently reported in Zynga Leans on Some Workers to Surrender Pre-IPO Shares that the technology company is making certain employees an offer they can’t refuse: cough up your pre-IPO stock options or your first born is dead. ¬†Well, not really. The threat is that the employee will lose his or her job. While it is understandable that the company doesn’t want to have another Google cook who makes out like a bandit when Zynga goes IPO, it is also unclear whether Zynga’s approach is either legal or wise.

Under New York’s Limited Liability Company Act, for example, an employee’s sweat equity is valued like a cash contribution. So if you offer $50,000.00 of your cooking services to a cash starved start-up in exchange for 2% of the company and a measly $25,000.00 salary, you are in the same position as another investor who put in $50,000.00 cash for 2%. Of course, you could end up getting a windfall if the company eventually goes public and is worth $2 billion.

That is the position Zynga is about to find itself when it goes public. To rectify the problem of attracting new talent with not enough shares to dole out, the company is apparently going to certain employees and demanding that they return some or all of their stock options, or else. If this is merely a case buyer’s remorse, then Zynga will be asking for a great deal of breach of contract and wrongful termination litigation from terminated employees. Of course, if the employees have not lived up to their part of the bargain, then the law in New York at least allows companies like Zynga to ask for interests back under threat of breach of contract litigation against the employee.

In either case, it doesn’t seem like good business. People will be more reticent to work with start-ups if they expect that, down the line, the company will finagle them out of their not yet vested stock options so that they can go to more efficient resources — i.e. more valuable people. If a company is worried about getting itself into a tight bind like this, it seems better to hybrid the transaction with some cash so that the company doesn’t find itself later on with not enough stock to go around, or, worse, embroiled in class action litigation. Otherwise, the company shouldn’t make the deal in the first place.