In the Bailey v. State of Alabama case in 1910, the U.S Supreme Court ruled that certain aspects of Alabama's peonage laws were unconstitutional because they violated the Thirteenth Amendment, which abolished slavery and involuntary servitude. The case involved an African American man named Alonzo Bailey who had signed a one-year contract to work for a lumber company but left after only a month without repaying his advance wages. Under Alabama law at that time, leaving employment without just cause was considered prima facie evidence of intent to defraud, making it punishable by criminal penalties or forced labor until debts were paid off - essentially creating conditions akin to slavery. The court held this aspect of the state’s law as unconstitutional since it imposed involuntary servitude on individuals unable to fulfill their contractual obligations.

In the dissenting opinion for Bailey v. State of Alabama, Justice Oliver Wendell Holmes Jr. argued that the majority's decision to strike down an Alabama law criminalizing breach of labor contracts was a misinterpretation of the Thirteenth Amendment and federal peonage laws. He contended that these laws were not intended to interfere with states' rights to regulate their own economic affairs or define crimes within their jurisdictions, but rather aimed at preventing involuntary servitude in forms akin to slavery. The justice believed that interpreting them otherwise would lead to unwarranted federal intrusion into state matters and could potentially invalidate many other state laws related solely to contract enforcement. Furthermore, he disagreed with the majority's view that this particular law was racially discriminatory; he saw it as applying equally regardless of race and thus not violating equal protection principles under Fourteenth Amendment.