Freedom of contract

Freedom of contract is the freedom of private or public individuals and groups (of any legal entity) to form contracts without government restrictions. This is opposed to government restrictions such as minimum wage, competition law, or price fixing. The freedom to contract is the underpinning of laissez-faire economics and is a cornerstone of free-market libertarianism. Through freedom of contract, individuals possess a general freedom to choose with whom to contract, whether to contract or not, and on which terms to contract.

Henry James Sumner Maine proposed that social structures evolve from roles derived from social status to those based on contractual freedom. A status system establishes obligations and relationships by birth, but a contract presumes that the individuals are free and equal. Modern libertarianism, such as that advanced by Robert Nozick, sees freedom of contract as the expression of the independent decisions of separate individuals pursuing their own interests under a "minimal state."

In 1902 a New York baker named Joseph Lochner was fined for violating a state law limiting the number of hours his employees could work. He sued the state on the grounds that he was denied his right to "due process." Lochner claimed that he had the right to freely contract with his employees and that the state had unfairly interfered with that right to prop up monopoly interests.

In 1905, the Supreme Court used the due process clause in the Fourteenth Amendment to declare unconstitutional the New York state statute imposing a limit on hours of work. Rufus Wheeler Peckham wrote for the majority: "Under that provision no state shall deprive any person of life, liberty, or property without due process of law. The right to purchase or to sell labor is part of the liberty protected by this amendment."

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