In Bailey v. State of Alabama (1908), the U.S. Supreme Court ruled that an Alabama statute violated the Thirteenth Amendment's prohibition against involuntary servitude. The law in question allowed a presumption of fraud and criminal punishment for any laborer who failed to perform services under a contract, even if they had received advance payment. Robert Bailey, an African American man, was convicted under this law after leaving his job before fulfilling his contractual obligations despite having been paid upfront by his employer. The court held that such laws were essentially attempts to reestablish conditions akin to slavery by coercively maintaining labor discipline among black workers in Southern states post-Civil War era. It concluded that while breach of contract could be subject to civil liability, it should not result in criminal penalties as it would effectively compel service from individuals through fear of punishment - thus constituting involuntary servitude which is prohibited by the Thirteenth Amendment.

In the dissenting opinion for Bailey v. State of Alabama, Justice Oliver Wendell Holmes Jr. argued that the majority's decision was a misinterpretation of the Thirteenth Amendment and its enabling legislation. He contended that these laws were designed to abolish slavery and involuntary servitude, not to regulate contracts or criminal law in general. According to him, if a person voluntarily enters into an agreement but later fails to fulfill it due to negligence or willful misconduct, this should be considered as fraud rather than peonage (a system where one is bound in servitude until a debt is paid off). He believed that such cases should be handled by state courts under their own contract laws without federal interference unless there was clear evidence of intent on part of states' authorities themselves trying intentionally reestablish some form equivalent slavery or involuntary servitude which he did not see present in this case.