First Amendment Likely Bars Arizona's Withdrawal of Tax Benefits to Nike Over Betsy Ross Sneaker Controversy

The Supreme Court has held that the government generally may not terminate contracts with contractors based on their constitutionally protected speech; the same likely applies to financial incentives..

Arizona Republic (Maria Polletta) reports:

Arizona Gov. Doug Ducey on Tuesday slammed Nike for canceling the release of a shoe featuring an early design of the American flag, saying it had "bowed to the current onslaught of political correctness and historical revisionism." … [T]he Republican leader vowed to withdraw financial incentives recently promised to the company in exchange for opening a manufacturing plant in Goodyear with some 500 full-time jobs.

Nike pulled the shoe, set to go on sale this week, after former NFL quarterback Colin Kaepernick told the company he and others found the version of the flag depicted on the shoe offensive, according to a Monday report from The Wall Street Journal. Nike said it did not want to "unintentionally offend and detract from the nation's patriotic holiday."

The design — often called the "Betsy Ross" flag, though it's not clear the 18th century upholsterer actually made it — has been appropriated by extremist groups such as the Ku Klux Klan and the "militia movement" in recent years.

But the First Amendment generally forbids the government from retaliating against government contractors based on the contractors' protected First Amendment activity (which would include either deciding to release a shoe with a particular flag design, or deciding not to release it); the Supreme Court so held in Board of Comm'rs v. Umbehr (1996). And while that case involved traditional payment-for-service contracting, the logic of the case would apply to financial incentives such as those involved in the Nike case. (Indeed, Umbehr relied on, among other cases, Speiser v. Randall (1959), which held this as to tax exemptions.)

Of course, the government can generally choose to terminate a contract (assuming the terms of the contract allow that) or not to renew it for a wide range of reasons. But it can't do that based on, say, the party's race or religion—or, the Court held in Umbehr and a companion case (O'Hare Truck Serv. v. City of Northlake (1996)) the party's First-Amendment protected speech.

The Court in Umbehr focused on speech-based decisions to cancel a terminable-at-will contract, or not to renew such a contract. But it sounds like the Nike matter likewise involves a decision to cancel an already arranged plan; and just as the First Amendment bar on the government firing employees based on their First Amendment activity also applies to refusals to hire (Rutan v. Republican Party of Illinois (1990)), so the First Amendment bar on terminating contracts based on First Amendment activity applies to refusals to contract.

For more, see my post about why it's unconstitutional for the City of Los Angeles to require that would-be contractors disclose their ties to the NRA.