In the 1923 case of McConaughey v. Morrow, employees of the Panama Canal and Panama Railroad Company sued Governor Morrow and other officials over wage discrepancies. The plaintiffs argued that they were entitled to receive wages equal to those paid for similar work in the continental United States under an Act passed by Congress in 1904. However, a subsequent Executive Order issued by President Wilson had reduced their pay rates based on local cost-of-living adjustments. The Supreme Court ruled against the plaintiffs, stating that while Congress did have authority over setting initial wage rates, it also granted discretionary power to adjust these wages as necessary to executive officers (in this case, President Wilson). Therefore, despite any perceived unfairness or inconsistency with prior legislation, such adjustments were deemed legally valid within the scope of executive powers.

In the dissenting opinion for McConaughey v. Morrow, Justice Holmes argued that the Panama Canal Act did not intend to exclude employees of the Panama Railroad Company from its provisions. He believed that Congress intended to treat all government employees in the Canal Zone equally and fairly, regardless of their specific employer. The majority's interpretation was seen as creating an unnecessary distinction between different groups of federal workers who were performing similar duties under similar conditions. Furthermore, he disagreed with the majority's view on jurisdictional matters and contended that U.S courts had authority over this case because it involved a dispute about wages paid by a U.S-owned corporation operating within a territory controlled by America.