Occupational Licensing

State Licensing Laws Are Mostly Awful; Sen. Mike Lee Might Have a Solution

Licensing laws are mostly a state issue, but a 2014 Supreme Court decision gives the federal government a role to play too. Lee is seizing the opportunity.


State licensing laws are a mess.

They limit the freedom, opportunities, and happiness of American workers—particularly those on the lower end of the economic scale.

These are the laws that say a woman in Louisiana can't earn a living by threading eyebrows unless she takes 750 hours of classes in unrelated beauty skills and passes a state exam. The laws that say it's illegal to get paid to talk about the history of Charleston, South Carolina.

They are the laws that say you can go to jail for massaging a horse in Tennessee unless you've had years of veterinarian schooling, that get state officials to launch investigations of barber school students giving haircuts to the homeless, or, as happened last week, that result in a police officer body-slamming a California woman for the "crime" of selling flowers without a state-issued permission slip.

In some cases, though, these laws themselves might be illegal.

The Supreme Court in 2014 overturned a North Carolina Board of Dental Examiners ban on non-dentists offering teeth whitening services. The ruling opened the door to lawsuits against state-level licensing boards that behave like private-sector monopolies by enforcing anti-competitive rules against their very own potential competitors.

In that case, the court ruled licensing boards are in violation of federal antitrust laws if they engage in openly anti-competitive practices—potentially putting state boards on the hook for huge payouts—but the ruling also created significant questions, including how states could bring their licensing boards to heel and secure immunity from similar lawsuits.

Sen. Mike Lee, R-Utah, on Thursday will introduce a bill that would give states two paths to immunity. The first by bringing state licensing boards under direct supervision by the legislative and executive branches. The second by requiring states to show why a certain licensing requirement is necessary to protect public health and safety.

Lee's "Restoring Board Immunity Act" creates a limited, conditional exemption shielding licensing boards from federal antitrust lawsuits, but only for states that change how their licensing boards operate and how courts handle disputes between those boards and individuals subjected to their rules.

"There is a natural tension between federal antitrust law and state licensing boards," says Lee. "This bill would provide some much needed certainty for states, professionals, and consumers while expanding freedom for all."

The new bill is an attempt to expand on Lee's ALLOW Act, which he introduced last year and re-upped earlier this session. That proposal would apply only to federal enclaves—places like Washington, D.C., military bases, and national parks—and would allow licensing laws "only to those circumstances in which it is the least restrictive means of protecting the public health, safety or welfare."

Like the ALLOW Act before it, the RBI Act is being welcomed by licensing reformers.

Jeff Malet Photography/Newscom

The bill "has the potential to really advance cause of occupational licensing reform," Robert Johnson, an attorney with the Institute for Justice, a Virginia-based libertarian law firm that has a long track record of challenging onerous occupational licensing laws, told Reason.

Disputes over licensing laws have attracted more attention in recent years, but the problem is decades old. One out of every five jobs in this country require some form of government permission slip. One in every 20 jobs required one in 1950.

Licensing laws limit economic opportunities for all workers, but vulnerable populations are hit harder. A 2015 report by the Department of Labor and the White House Council of Economic Advisers found immigrants, people with criminal convictions, and low income workers are most likely to be rejected when applying for a state-issued license.

Special interests are the main beneficiaries, since licensing laws can be used to limit competition in a certain professional market. "Empirical work suggests that licensed professions' degree of political influence is one of the most important factors in determining whether states regulate an occupation," the White House report concluded.

Bipartisan consensus on licensing has sparked some state-level reforms that mirror Lee's proposal. Reason in March reported passage of a major occupational licensing reform law in Mississippi driven by concern over antitrust immunity.

The bill, signed by Gov. Phil Bryant in April, navigates the two-part test created by the Supreme Court's North Carolina Board of Dental Examiners ruling by requiring the state's licensing boards to submit new rules to the governor, secretary of state, and state attorney general for approval. In theory, this satisfies the requirement that such boards are "actively supervised" by the state government.

Those reforms could meet the Supreme Court ruling standards, but will state officials truly be supervisors or merely board rubberstamps?

Lee's bill would ensure it was the former. In the case of "active supervision" licensing boards would not only be subject to executive or legislative oversight, but would be subject to periodic review by state officials.

States would have to pass legislation requiring lawmakers to conduct comprehensive reviews of their licensing boards every five years. Those would include a cost/benefit analysis and an assessment of any new licensing rules created since the last review.

States unwilling or unable to pass major reform could still receive immunity from anti-trust rules by creating a statutory affirmative defense placing the burden of proof in license enforcement actions on the state. A licensing board would have to prove why enforcement is necessary.

Most licensing laws are currently given rational basis review—the lowest level of legal scrutiny. A state only has to show a law or rule is "rationally related" to a legitimate government interest. Lee's proposal would push states to impose "intermediate scrutiny" on licensing laws.

This change would make it easier for individuals victimized by unfair licensing laws to challenge them in court.

"The lax rational basis test is the biggest hurdle that plaintiffs face when challenging occupational licensing laws in court," says Anastasia Boden, an attorney with the Pacific Legal Foundation, a nonprofit with a track record of challenging state licensing laws. "If courts were forced to actually evaluate whether a law serves the public interest, rather than turning a blind eye to the facts, victims of government overreach would stand a better chance of vindicating their rights through constitutional lawsuits."

This an element of the bill that might face opposition in Congress, in part because of a long-running conservative legal dispute over how courts should scrutinize government actions accused of violating due process, something that has little, if anything, to do with occupational licensing laws.

Another criticism of the bill could be launched by ardent defenders of states' rights, asking whether Congress should be involved in fixing these state problems. That die has, however, already been cast. The North Carolina Board ruling expressly acknowledges a role for the federal government to challenge licensing boards' anti-competitive behavior. Lee's bill is an attempt to simultaneously address legal uncertainty, lower barriers to work, enhance economic opportunity, and expand consumer choice.

In a hyper-partisan environment, fixing onerous licensing laws is something almost everyone agrees upon.

Research from Morris Kleiner, a labor economist at the University of Minnesota, and the Heritage Foundation, a conservative think tank, shows American households pay between $400 and $1,500 more annually for goods and services because licensing laws distort prices. Licensing laws take more than 3 million jobs out of the economy, according to research from the Brookings Institution, a center-left think tank.

"It's well documented that licensing increases prices for consumers, but we don't have a lot of evidence to show that it increases the quality of service for consumers," says Edward Timmons, a professor of economics and director of the Center for the Study of Occupational Regulation at St. Francis University in Pennsylvania.

The Federal Trade Commission, which successfully challenged the North Carolina Board of Dental Examiners' teeth whitening regulations, is supportive of the bill, acting chairman Maureen Ohlhausen told Reason. The commission recently launched an Economic Liberty Task Force to help states fix problematic licensing laws.

"It furthers the same goals as the FTC's Economic Liberty Task Force: promoting competition, innovation, and economic opportunity," Ohlhausen said. "It also encourages states to pursue occupational licensing reform and preserves the FTC's ability to seek injunctive relief for serious antitrust violations."

Sens. Ben Sasse, R-Nebraska, and Ted Cruz, R-Texas, who worked as an attorney for the FTC prior to running for Congress, have signed onto the bill as cosponsors. Other cosponsors might be added to the bill after it is introduced.

"I'm excited to see members of Congress tackling this issue," says Johnson, the attorney with IJ. "You shouldn't need a government permission slip to earn a living."