The U.S. Supreme Court case Smith, Auditor of the Panama Canal v. Jackson in 1917 revolved around a dispute over wages for work performed on Sundays and holidays by employees of the Panama Canal Commission. The plaintiff, Mr. Jackson, argued that he was entitled to additional compensation for working on these days under an Act passed by Congress in 1884 which stipulated extra pay for laborers and mechanics employed by the government who worked beyond eight hours per day or on Sundays or holidays. However, the defendant (Smith) contended that this law did not apply to workers like Jackson because they were employed outside of the United States (in Panama). The Supreme Court ruled in favor of Smith stating that unless specifically stated otherwise within legislation itself, laws enacted by Congress are presumed not to have extraterritorial application - meaning they do not extend beyond U.S borders. Therefore it concluded that since there was no explicit provision within the 1884 Act indicating its applicability overseas; it could not be assumed to cover employees such as Mr.Jackson working at foreign locations like Panama.

In the dissenting opinion for Smith, Auditor of the Panama Canal v. Jackson (1917), it was argued that Mr. Jackson should be entitled to his claim as he had performed services under a valid contract with the government and thus deserved compensation. The dissenting justices believed that there were no legal grounds to deny him payment for work done in good faith and according to an agreement made by both parties involved - Mr. Jackson and the U.S Government represented by its agent, Governor Goethals of Panama Canal Zone. They held that if any mistake was made regarding salary rate or terms of employment, it should not fall on employee's shoulders but rather on those who drafted such contracts without proper understanding or clarification of their implications.