Does the Takings Clause of the U.S. Constitution Require the Government to Compensate Businesses for Forced Temporary Closures?

As state governments grapple with limiting the spread of COVID-19, they have been issuing “stay at home” or “shelter in place” orders to residents and ordering non-essential businesses, such as restaurants and stores, to close. 

State governments generally have broad authority—known as “police powers”—to take actions that protect public health, welfare, and safety.  Unlike the federal government, which must derive its powers from a specific source in the Constitution, state governments can act without a specific grant of power.  In other words, they have presumed powers that are limited only by other laws, such as federal or state constitutions. 

One limitation on government police power is the Fifth Amendment’s “Takings Clause.”  That clause provides that “private property [shall not] be taken for public use, without just compensation.”  The clause thus does not prohibit outright the taking of private property, but it does require the government to provide fair compensation for that taking.  While the Fifth Amendment itself applies only to the federal government, the Takings Clause is made applicable to the States through the Fourteenth Amendment.

Broadly speaking, there are two types of takings: “classic” takings and “regulatory” takings.  In a classic taking, the government directly appropriates or physically invades private property for its own use—eminent domain is a well-known example. 

By contrast, regulatory takings occur where the government’s regulatory actions are tantamount to a direct appropriation of the affected property.  A regulatory taking, for example, might occur where government regulations completely deprive an owner of all economically beneficial use of her property.  In determining whether state regulatory actions amount to a taking that requires compensating the property owner, courts must weigh the economic impact on the property owner against the public interest in each unique circumstance. 

In the COVID-19 context, the government’s closing down of a business is not a physical appropriation of property, so it is not a classic taking.  But can it constitute a regulatory taking?

At present, many businesses are still permitted to operate—for example, restaurants can maintain take-out and delivery business, and retailers can continue their online operations and sales.  In those examples, owners have not yet been deprived of all economic benefit of their property. 

Courts are also less likely to find that a taking has occurred where the government is exercising its police powers to adjust the benefits and burdens of economic life to promote the common good.  During these early stages of the response to COVID-19, public health experts generally agree that the closure of businesses promotes the common good by helping slow or reduce the spread of the virus among the general public. 

In the long run, however, lengthier and more severe restrictions may present problems for governments.  The restrictions could last so long that businesses are forced to shutter indefinitely or must declare bankruptcy.  In those instances where government restrictions render a business economically valueless, the argument that a taking has occurred becomes stronger.

Some States have started to take more aggressive actions that go beyond just closing businesses.  For instance, in California, Governor Gavin Newsom’s March 12 Executive Order permits the State to use, “through the exercise of the State’s power to commandeer property – hotels and other places of temporary residence, medical facilities, and other facilities that are suitable for use as places of temporary residence or medical facilities as necessary for quarantining, isolating, or treating individuals” for COVID-19.  These “commandeering” measures may also present takings issues.  Notably, after Hurricane Katrina, courts ruled in favor of business owners where the government took over property to perform canal work and repair levees.  Such government actions will look more like compensable takings as they become more directly intrusive on property owners’ rights.

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