Regulatory excess can transform entrepreneurs into unwitting criminals

Illinois entrepreneurs face myriad regulations that impede starting or running a business. Compliance with those regulations is costly; more importantly, it is almost impossible for entrepreneurs to know every regulation that affects their businesses. The uncertainty of not knowing the law creates a regulatory minefield and takes away opportunity for Illinoisans.

For Illinois entrepreneurs, regulation is ubiquitous. Take the six to eight weeks it takes to hang a sign outside a Chicago storefront. Or the licensing requirements that stand in the way of as many as a quarter of all jobs in Illinois, including manicurists, auctioneers and locksmiths.

Those regulations are all costly on their own, but the uncertainty created by the sheer volume of regulations can stop many would-be entrepreneurs in their tracks. Illinois could eliminate much of that uncertainty – and free entrepreneurs to create jobs in the Prairie State – by allowing a “mistake of law” defense that prevents entrepreneurs from being punished for violating arcane rules. This provision wouldn’t excuse those who knowingly violate another person’s trust or safety, but it would protect them against breaking an unknown arbitrary rule.

Suppose an Illinoisan occasionally looks after her neighbor’s children in her own home and receives a small payment for her time. If she looks after more than three children – including her own – she is operating an unlicensed day care facility and could face a fine of up to $2,500 and nearly one year in prison. The law is not only overly burdensome, it is so obscure that the wife of the Macon County state’s attorney may have accidentally violated it.

If state prosecutors cannot even keep track of every facet of the law, then it is unreasonable to assume entrepreneurs can. Chicago entrepreneurs, for example, may not reasonably know they are violating the law by selling “manufactured goods,” such as homemade jewelry, to local stores or on the internet. Likewise, home-based entrepreneurs who display their goods on racks or allow more than two customers in their home simultaneously, or more than 10 customers per day, are breaking the law.

Each of those rules imposes a burden on entrepreneurs, but the regulatory uncertainty created by the sheer volume of rules is itself a problem. Few companies start out as big businesses with big compliance departments. Most businesses start small and grow. Indeed, small businesses account for two-thirds of all new jobs created in the United States.

But lawmakers often write rules for big businesses. Sometimes those businesses even lobby for regulation as a way of shutting out smaller competitors. Whatever the reasons behind the growing regulatory burden, complex rules shut out small businesses and disproportionately hurt entrepreneurs from low-income and minority backgrounds who can less easily afford the cost of hiring lawyers.

If Illinois is to create more jobs, it needs those entrepreneurs. However, potential job creators can be discouraged by the regulatory uncertainty they face. If entrepreneurs know the law, they can at least comply with it or decide whether it’s worth the effort to start a business. But if they don’t know the law, then they must add the risk of legal consequences to all of the reasons not to start a business. Moreover, little-publicized laws may be ineffective. If the laws are unknowable then they cannot function as a deterrent, and it makes little sense to punish citizens for their ignorance.

Traditionally, ignorance of the law is not a valid defense, but that tradition began when there were only nine crimes at the common law. And common law crimes require an “evil act,” such as murder or robbery. Although someone might be unaware that his or her actions were illegal, he or she would still likely know those actions were immoral. Regulatory crimes are different. Looking after a neighbor’s children or selling homemade jewelry on the internet are not inherently immoral acts.

For that reason, legal scholars have proposed a “mistake of law” defense that would allow ignorance to be raised as a defense – but only for regulatory crimes with no “evil act.” Allowing this defense doesn’t force prosecutors to prove what a defendant knew, and defendants can’t be willfully ignorant of the law. It provides a safeguard for accidental violators who can show that not only were they were unaware of the law, but also that a reasonable person would not have known about the law.

Certainly, a “mistake of law” defense does not solve every regulatory problem. It does not eliminate the burdensome cost of compliance. It would be better to reduce the scope of law to something less burdensome and more knowable and to eliminate unnecessary regulations altogether. But it may also be a long time before such reforms are enacted. Indeed, even if the General Assembly acted today, it would find that the scale of the legal code is not only a barrier to entrepreneurs but also to legal reformers who must first review each and every law.

Enacting a “mistake of law” defense does not require that each law be reviewed. It allows courts and juries to make reasonable determinations about an accused person’s knowledge of the law. And enacting a “mistake of law” defense would immediately eliminate the regulatory uncertainty imposed on job creators in Illinois.