Governments often enforce economic regulations though fines far exceeding those imposed for truly criminal conduct. An agency may assess hundreds or even thousands of dollars for each day an unwary business is “out of compliance.”

The Colorado Supreme Court recently decided a case that, if adopted nationally, may curb this abuse.

The Bill of Rights consists of the first ten amendments to the U.S. Constitution. The Eighth Amendment provides that “Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.” The portion banning excessive fines is called, sensibly enough, the “Excessive Fines Clause.”

When adopted in 1791, the Bill of Rights was intended to restrict only the federal government, not state or local governments. State constitutions contained their own bills of rights.

In 1868, the 14th amendment become part of the Constitution. It provided, in part, that no state should “deprive any person of life, liberty, or property, without due process of law.”

The scope of this “Due Process Clause” was fairly narrow. Nevertheless, the Supreme Court has misinterpreted it to limit states and localities by most of the rules in the federal Bill of Rights. Federal rights applied against state and local governments include free speech, freedom of religion, the right to keep and bear arms, and many others.

In February, the Supreme Court added the Excessive Fines Clause to the list of incorporated rights. States and local governments are now forbidden from imposing excessive fines, just as the federal government is.

Dami Hospitality owned a small motel in Denver with a handful of employees. Colorado requires most businesses to carry workers compensation insurance coverage, but Dami let its coverage lapse several times. The law imposed fines of between $250 and 500 for each day a company was out of compliance.

Dami’s owners apparently relied on outside managers to administer their workers comp payments. For several years, the state failed to warn Dami of its non-compliance. Then the state fined Dami for 1,698 separate daily offenses, totaling $841,200. This was more than the motel’s entire annual gross revenue!

Clearly Dami was negligent in failing to comply with state law. But there was no claim Dami’s owners acted maliciously or with criminal intent. And, fortunately, no one was harmed by their negligence.

Yet they faced a fine far in excess of those commonly imposed on real criminals.

This kind of abuse is common even in Colorado, a state with a business-friendly reputation. Again and again, tiny family-owned enterprises guilty of nothing more than carelessness have faced fines large enough to destroy their livelihood.

In the Dami case, the state argued that the Excessive Fines Clause did not protect incorporated businesses — that it protected individuals only. This argument makes little sense. The Excessive Fines Clause contains no words limiting its protection to individuals. And the owners’ choice of business form — partnership, corporation, or other association — is driven largely by state laws irrelevant to the protections in the Bill of Rights.

Moreover, the U.S. Supreme Court has held that much of the Bill of Rights protects corporations. For example, the Free Press Clause obviously protects the corporation called the New York Times, and the Free Speech Clause protects incorporated political associations.

Accordingly in Colorado Department of Labor v. Dami Hospitality, the Colorado Supreme Court ruled that the Excessive Fines Clause does protect corporations.

The court also outlined some of the factors used to determine if a fine is excessive: the gravity of the violation, the defendant’s ability to pay, and how the state treats other defendants similarly charged.

On another point, however, the Colorado court erred. The court ruled that when determining whether a per-day fine is “excessive” you look only at the daily amount ($250-500) rather than the gross amount assessed. It pointed out that the state legislature considered each day without coverage to be a separate offense.

As lawyers say, this ruling “elevates form over substance.” Whatever the legislation may say, when considering a constitutional right each day cannot really be a separate offense. Businesses could never operate if they had to re-assess their compliance with every single law every single day. As a practical matter, they can do so only periodically.

In Colorado, workers compensation premiums are paid quarterly, so Dami was negligent perhaps for every quarter it failed to pay. But it was not negligent 1,698 times.

Rob Natelson is senior fellow in constitutional jurisprudence at the nonprofit Independence Institute in Denver and a former constitutional law professor. Before becoming a professor he owned several businesses, and carried workers compensation insurance.